Over the past 18 months, the Federal Government’s proposed Division 296 tax has attracted significant attention. Following industry consultation and substantial redesign, the measure is now clearer in both intent and operation.
Division 296 is no longer a proposal based on taxing “paper gains”, but instead a targeted additional tax on earnings associated with very large superannuation balances.
Below is a practical summary of what is currently known, and what trustees should be aware of going forward.
What is Division 296?
Division 296 introduces an additional tax on superannuation earnings for individuals whose total superannuation balance (TSB) exceeds legislated thresholds.
The policy objective is to reduce the level of tax concession available to very large super balances, rather than changing superannuation for most Australians. Importantly, following redesign, unrealised gains are no longer taxed.
When does it start?
- Start date: 1 July 2026
- First assessments: After 30 June 2027
- The delay reflects significant changes made after industry feedback
Who is affected?
Division 296 applies only to individuals (not funds) whose total superannuation balance exceeds $3 million.
Based on current ATO data, this affects a small proportion of superannuation members, though that number is expected to grow over time.
How does the tax work?
- Earnings are calculated using changes in a member’s total superannuation balance, adjusted for contributions and withdrawals
- Only realised investment earnings and taxable income are included
- A proportional formula determines how much of those earnings relate to balances above the thresholds
- The tax is assessed to the individual, not the super fund
- Members may choose to pay the tax personally or release funds from super
Key thresholds and effective tax rates
| Total superannuation balance | Effective tax on earnings |
|---|---|
| Up to $3 million | No change (existing rules apply) |
| $3 million – $10 million | Up to 30% on earnings attributable to this portion |
| Above $10 million | Up to 40% on earnings attributable to this portion |
What has changed from the original proposal?
Early versions of Division 296 attracted criticism because they proposed taxing unrealised capital gains. Following industry consultation, this approach was abandoned.
- Does not tax unrealised gains
- Introduces tiered thresholds
- Includes indexation
- Uses a more conventional earnings-based calculation
These changes were widely acknowledged in professional commentary as a material improvement in design.
What does this mean for SMSFs and large balances?
For most members, there is no impact at all. For those approaching or exceeding the thresholds:
- Liquidity planning becomes more important
- Timing of realised gains may warrant consideration
- SMSF valuation accuracy and reporting will be increasingly scrutinised
- Estate planning and pension strategies should be reviewed in light of potentially higher tax on future earnings
This is not a reason to exit superannuation, but it does reinforce the need for thoughtful structuring and forward planning.
What should you do now?
- No immediate action is required
- The legislation is not yet in force
- Final details may still evolve before commencement
However, members with balances near or above $3 million should:
- Be aware of the upcoming change
- Factor Division 296 into long-term planning discussions
- Seek advice before making any significant structural changes
We will continue to monitor developments closely and provide updates as legislation is finalised.
Learn more about SuperConcepts SMSF administration services
We specialise in end-to-end administration of SMSFs, including funds that hold collectables. Our team works closely with you or your adviser to ensure your fund remains compliant and stress-free.
You can contact Gareth Brown anytime on 0422 204 200 to understand how we can fulfil your SMSF administration needs, or you can visit our website to find out more superconcepts.com.au/.
Disclaimer: General information only. SuperConcepts does not provide financial product advice. Consider your circumstances and seek licensed advice where appropriate.
