The proposed tax legislation, Div 296, aims to reduce tax concessions for individuals whose total superannuation balance (TSB) exceeds $3 million. The Australian government introduced this drafted proposal to achieve a more equitable Australian Superannuation system. The Div 296 Tax will be inserted into the existing ITAA 1997 which, together with the Imposition Bill, will increase the tax rate by 15%. If implemented, from July 1st, 2025, the projected 15% additional tax will be enforced on superannuation earnings, bringing the overall percentage to 30% to Australians with a superannuation balance of over $3 million.
The calculation used to formulate adjusted TSB at the end of each financial year is:
- Calculate Earnings: TSB at the end of the year + withdrawals – contributions. An individual’s prior year adjusted TSB is then subtracted from this to provide the amount of adjusted earnings above $3m.
- Calculate proportion of earnings attributable: Step 1 above / closing TSB for that financial year
- Tax Liability: 15 per cent x earnings (step 1) x Proportion of earnings (Step 2)
Important notes:
- The existing taxation laws current taxing point occurs upon the disposal of an asset however, in the new Div 296 the TSB is inclusive of any unrealized capital gains within the fund and its investment.
- Any negative earnings in a specific year will be applied against future year positive earnings, rather than a refund of previous years.
- If an individual holds multiple superannuation interests, then they can choose which interest(s) to release the money from.
- The tax is imposed on the individual, meaning they must pay the tax personally or opt to have the amount released from their superannuation entitlements.
- There is no further indexation of the $3 million threshold on the Bills, this is different to the previous superannuation threshold, which allowed for things such as inflation.
- In the calculation of adjusted TSB, the ‘withdrawal’ component also includes compulsory minimum pension withdrawals, increasing the earnings amount, resulting in higher additional tax liabilities.
- Individuals who have not yet met the conditions of release to access superannuation will not have the opportunity to decrease superannuation balances by revoking funds from their superannuation entitlements.
- The individuals affected are likely to incur increased compliance costs due to additional superannuation fund reporting requirements.
- The ATO will issue a Div 296 Tax notice of assessment to the individual, with the payment due within 84 days.
We are awaiting the finalization of the legislation which has not yet currently passed.
If you have any queries, please contact our office, MJJ Accounting & Business Solutions on 07 3112 1936
Comments are closed.