David Busoli, principal of SMSF Alliance, said even though the legislation has passed the House of Representatives, its passage through the Senate is not guaranteed, and he is conscious that there is a lack of understanding about how the tax is proposed to be calculated if it does.
Busoli provided a simplistic example, ignoring add-backs, adjustments and the art of calculating the member’s total super balance, which he said are subjects to address if the tax becomes real.
“Let’s just concentrate on the bare numbers. The tax would begin in the 2025–2026 financial year. It would apply to any member whose total super balance is over $3 million as of 30 June 2026 and apply to a portion of the fund ‘earnings’ for that year,” he said.
“Note that, unlike other measures where the trigger is the previous year’s TSB, for this tax, the trigger is at the end of the year that will be taxed.”
He continued the example using a client, Jack, whose 30 June 2026 TSB is $7 million. As he’s over the $3 million cap, tax will need to be considered. His 30 June 2025 balance was $6 million.
“We must firstly calculate Jack’s Div 296 earnings for the 2026 financial year,” Busoli said. “To do this we calculate his earnings, which is equal to his TSB at the end of the financial year minus the greater of TSB at the start of the financial year or $3 million. The calculation will therefore be $7 million – $6 million = $1 million.”
He added that it is important to note that the TSB at the end of the financial year will be adjusted by contributions (removed) and withdrawals (added back), as well as a couple of other items that are not considered in this simple example.
Continuing with the calculation, Busoli said the percentage that will be taxed is then calculated as such:
{$7m (TSB at end of FY) – $3m (large balance threshold)} ÷ $7m (TSB at end of FY) = 57 per cent. Therefore, tax is 15 per cent of ($1m x 57%) = 15 per cent of 570,000 = $85,500.
“If Jack’s balance had remained at $6 million the Div 296 tax would be nil as there would be no earnings,” he said.
“If Jack’s balance had fallen to $5 million then he would also pay no Div 296 tax plus he would have a carried forward ‘loss’ of $1 million so if, in the next financial year, his balance grew from $5 million back to $6 million, there would also be no tax.”
