He said the example relates to “Jamal”, who had a TSB on 30 June 2025 of $3.2 million that decreased to $2.8 million on 30 June 2026. He has no contributions or withdrawals for the year and the decrease in his TSB has come about due to negative earnings.

“Based on the application of the proposed law, $200,000 of the decrease is identified as ‘unapplied negative earnings’ that can be carried forward to be offset against future gains,” Cullen said.

“This example also highlights that where the 30 June 2025 TSB does exceed $3 million, a 30 June 2026 TSB below the threshold should not be ignored.”

Cullen continued that this raises a question about the advantage of using the strategy of taking benefit payments to reduce the TSB if they are going to be added back anyway.

Using Jamal again as an example, who had a TSB of $3.2 million on 30 June 2025, and $2.8 million on 30 June 2026, he added in the fact that Jamal also took a benefit payment of $500,000 during the year.

“The proposed legislation states that we need to determine Jamal’s ‘earnings’ by subtracting his prior year TSB from his current year adjusted TSB. His adjusted TSB is determined by applying the following formula: End of year TSB + withdrawals for the year – contributions for the year,” he said.

“For Jamal, this would be $2.8 million + $500,000 – $0 = $3.3 million. His earnings would then be $3.3 million (adjusted TSB at end of current year) – $3.2 million (prior TSB from end of previous year) = $100,000. So why attempt to find unapplied negative earnings if it runs the risk of uncovering positive earnings that will then be subject to Div 296 tax?”

He explained that where the TSB is below $3 million, individuals don't need to risk having positive earnings subject to the tax and although it may be determined that an individual has positive earnings, that is only one step in the process of calculating the Div 296 tax.

“Once you have determined that there are positive earnings, the next step is to determine the portion of the individual’s interest that exceeds $3 million,” he said.

“The formula for doing so is [(End of year TSB – large super balance threshold i.e. $3 million) / End of year TSB] x 100.”

He added that it is important to note this formula uses an individual’s actual TSB and not their adjusted TSB used to determine their Div 296 superannuation earnings and, for Jamal, the dollar value proportion above $3 million is nil, which will in turn not result in a positive proportion above $3 million.

He said for the next step in the Div 296 calculation process, to determine the taxable superannuation earnings that will be subject to Div 296 tax, an individual must have a positive proportion above $3 million.

“This is highlighted in the example, if we consider that taxable superannuation earning is determined by multiplying the earnings calculated in the first step above ($100,000) by the percentage worked out in the second step (less than or equal to nil) = nil,” Cullen said.