We note that there’s been a lot of confusion following the re-introduction of a tax that’s been proposed a few times – so here’s the basics:
What was proposed
The initial Division 296 tax was calculated using reference only to the opening and closing balance of your accounts in essence. The difference between the two, excluding contributions or withdrawals, would be the effective growth in your balance. Depending on if the balance was over $3m or $10m a tax would apply to that growth, meaning a tax on ‘unrealised’ gains.
What was passed
This was modified to avoid the tax on ‘unrealised’ gains and now focuses on taxable income, so only realised gains and investment income would be subject to the tax.
The tax essentially is 15% of that income that relates to your individual balances over $3m but less than $10m. Another 10% tax is on that income that relates to your individual balances over $10m.
Note that this is based on your individual superannuation accounts, not on the superannuation fund’s holdings.
How it works
The tax is based on either your opening or closing super balance, whichever is highest. In the first year (ended 30th June 2027) it will only be based on the closing balance. This gives members time to possibly reduce their balances during the year. It is calculated in reference to your share of the fund’s ‘super earnings’ which is taxable income less contributions plus exempt current pension income.
There is also a carve-out where funds can elect to ‘reset’ the value of their assets at the 30th June 2026 so that capital gains (forming part of taxable income above) is only calculated in reference to gains after that date, exempting capital gains from prior to that date. So we’ll be keeping two sets of books so to speak.
The tax levied to you individually and you can elect to either pay it yourself or release the funds from super to pay it.
Still not sure?
Get in touch with us and we can work through our calculators to model scenarios based on your situation.
Submitted by david@charmanpartners.com.au