Understanding the Proposed $3 Million Superannuation Cap

The Federal Government has proposed, from 1 July 2025, an additional tax of 15% on “earnings” for members who have a total superannuation balance of greater than $3 million. This additional tax will be referred to as Division 296 tax and will be levied on the member and not the superannuation fund.

Under the proposal, the additional Division 296 tax will be calculated as per below:

Division 296 Tax = 15% x “earnings” x proportion of earnings above $3 million

Proportion of Earnings = ([Total Superannuation Balance at 30th June 20XX] – $3 million)/[Total Superannuation Balance at 30th June 20XX]

Example:

John is 71 and has a total superannuation balance of $4 million on 30th June 2025. His balance increases to $5 million on 30th June 2026. He withdraws $200,000 during the year and makes no contributions to his superannuation.

Earnings = $5 million – $4 million + $200,000 = $1.2 million

Proportion of Earnings = ($5 million – $3 million) / $5 million = 40%

Division 296 Tax = 15% x $1.2 million x 40% = $72,000

As the above represents a significant change to the superannuation environment moving forward, we recommend that you contact our team to discuss how the above changes may impact you.