There was virtually no mention in the Budget of the proposed new tax for those with more than $3m in super (Div 296 tax). The Greens are mounting a final effort to get the Government to take even more drastic action but it remains to be seen whether they would risk derailing the measure altogether to secure their changes. To be honest, this all sounds to me like Division 296 tax is coming whether we like it or not.
The proposed Div 296 tax will apply from 1 July 2025, subject to it getting passed, to members with a total superannuation balance of over $3 million at the end of a financial year and will be calculated at 15% on the portion of your "earnings" (which for the first time in Australian tax law includes unrealised capital gains) above $3 million.
The portion is the percentage of your total superannuation balance at the end of the year which is over $3 million. The formula is total superannuation balance at the end of the year minus $3 million divided by your total superannuation balance at the end of the year. For example, if your total superannuation balance at the end of the year is $4.5 million, it’s $4.5 million minus $3 million, which is $1.5 million, divided by the $4.5 million. That gives you a proportion of a third.
And here comes the killer: the "earnings" that are going to be used for Div 296 tax is a complete new concept. It’s nothing like what we’ve ever seen before in Australian tax law. What we’re looking at is your total super balance at the end of the year minus your total super balance at the start of the year (with adjustments for withdrawals and contributions). Effectively, it's a tax on the unrealised gains on all your assets over the course of the year; e.g.if your total super balance is $4.5 million at the end of the year and your starting balance was $4 million, then your "earnings" is going to be $500,000.
The tax on these "earnings" (in addition to the already existing 15% tax on all real, i.e. realised earnings) is 15% times your proportion times your "earnings". Looking at a starting total super balance of 4 million at the beginning of the year, finishing total super balance of 4.5 million, the formula is 15% multiplied by a third multiplied by the $500,000 in "earnings" which gives you a Div 296 tax for that year of $25,000.
All this is being proposed as a fair and equitable tax, which begs the question as to what is equitable about taxing unrealised capital gains and not refunding negative losses (they may only be carried forward).
