Division 296 Tax: How the $3m Superannuation tax changes affect you
Upcoming legislative reforms may have implications on your Superannuation. The proposed Division 296 tax, set to take effect on 1 July 2025, will introduce higher tax rates for individuals with Super balances exceeding $3 million, including potential tax on unrealised gains.
Here's what you need to know about the Division 296 superannuation changes, and how Ord Minnett can help find the right strategy for you.
What is the new
Division 296 Tax?
Division 296 is a new tax introduced by the Labor government. If legislated, it will apply to individuals with Superannuation balances exceeding $3 million. Under Division 296, earnings that are attributable to the portion of a Total Superannuation Balance (TSB) over $3 million will be taxed at a flat rate of 15%. This means that you can be taxed on unrealised capital gains. The Division 296 tax is calculated based on the increase in your TSB, even if your actual gains haven't been "locked in" by selling an asset. Division 296 is a personal tax, separate from the existing Super fund tax.
For some people, the effective taxation rate on earnings attributable to TSB above $3 million could reach 30%. This is because of the existing 15% Super fund tax, plus the 15% Division 296 Tax. Division 296 applies to individuals, not Superannuation funds. If Division 296 applies to you, you will be able to pay it personally or through your Super fund.
If you are looking for more information, you can download a complimentary copy of our Division 296 Tax Quick Reference Guide. It includes an overview of the legislation, key features, and important considerations.
Get the Division 296 Tax Quick Reference guide
If you are looking for more information, you can download a complimentary copy of our Division 296 Tax Quick Reference Guide. It includes an overview of the legislation, key features, and important considerations.
Fill out the form below and we’ll send your free guide straight to your inbox.
When will Division 296 come into effect?
The Division 296 tax Bill has not yet been passed into law. Assuming the measure does pass through parliament, the first assessment for Division 296 will be based on an individual's TSB at the start and the conclusion of the 2025/26 financial year (1 July 2025 and 30 June 2026, respectively).
Remember that until Division 296 actually comes into law, the exact contents of the Bill and the function of the tax could change.
Can you withdraw funds to avoid Division 296?
While it is possible to withdraw funds to avoid Division 296 taxes, this may result in other financial liabilities, including capital gains tax or higher personal tax rates. If you withdraw funds prior to 30 June 2026, bringing your TSB below $3 million, you can reduce or eliminate your tax liability under Division 296.
To do this, you must meet the conditions for Super withdrawal. It's crucial that you take the time to consider all of the potential impacts of any decisions you make.
We recommend speaking with a financial adviser before making any decision to withdraw from your Super to ensure you’re choosing the most tax-effective option.
How will Division 296 affect you?
Here's an example of what it looks like in practice for a retiree in the following situation:
Under these conditions, our given retiree would be required to pay $23,865 in tax under Division 296.
Remember, that's in addition to existing Super fund taxation. Keep in mind this is just an example with fairly simple conditions. The implications of Division 296 could look significantly different based on your specific financial circumstances.
Try our Division 296 Tax Calculator
For a more precise look at what these changes mean for you, check out our Division 296 Tax calculator. This will show how much you stand to pay when these changes come into effect.
Possible responses to Division 296
There's no one-size-fits-all approach to dealing with changes like Division 296.
In addition to withdrawing funds, some other changes you might make to your financial strategy are:
Alternative investment options:
Depending on your situation, it may be worth considering different investment options. This can include investing in your personal name, using family trusts, company structures (which can have a 25% tax rate for eligible entities), or tax-effective investment bonds.
Gifting to adult children:
If your goal is to maximise your children's inheritance, gifting money to your adult children can be a more tax-effective option in light of Division 296.
Investing in a Principal Place of Residence (PPOR):
Another option that might be better for your financial situation is investing in your PPOR through measures like renovations.
Again, you shouldn't make any decisions in response to Division 296 without carefully considering all the implications and seeking advice.
Get the advice you need to manage Superannuation changes
Tax legislation and the strategies required to make tax-effective financial decisions continually change.
Our dedicated team of private wealth advisers have the knowledge and experience needed to adapt to new legislation like Division 296. We have quality in-house research teams and tax specialists at hand, allowing us to forge partnerships to help grow our clients’ wealth.
Find out why we're trusted to oversee more than $71.1 billion (as at 30 June 2025) in funds under advice for our clients. Start a conversation with us today and take control of your personal wealth.
Division 296 Frequently Asked Questions
Basics & Definitions
Who does Division 296 affect?
Division 296 applies to people whose Total Superannuation Balance (TSB) is over $3 million at the end of the financial year. The new tax includes self-managed Super funds (SMSFs). If you take money out before that date and bring your balance below the threshold, the tax won’t apply. However, depending on your situation, you may still be taxed on withdrawing funds from your Superannuation.
You should seek professional financial advice before making decisions.
What are unrealised gains?
An unrealised gain is an increase in the value of an asset or investment that an investor holds, which has not yet been sold. For example, if an individual owns a property in their Superannuation fund which they purchased for $1 million, and the next financial year it is valued at $1.1 million, even though the asset has not been sold, they will pay tax on the unrealised gain of $100,000.
Under Division 296, unrealised gains can be taxed if your TSB is over $3 million.
What about defined benefit pensions?
If you have a defined benefit pension, its value will be counted towards your Super balance. Special rules apply, and any tax might be deferred in some cases.
Liability & Timing
Should I take money out of my Super if my balance is over $3 million?
Not necessarily. Withdrawing could trigger other taxes, like capital gains tax (CGT), and may affect your financial situation. It’s important to get professional financial advice before making decisions.
When do I need to make my first tax payment?
The tax will first be due in the 2026/27 financial year after the ATO reviews Superannuation earnings from the 2025/26 financial year. If you are in a self-managed Super fund (SMSF), the tax assessment will happen after your fund submits its return.
What if my Super balance goes down?
If your Super fund has negative growth (loses value), the loss can generally be carried forward and offset future earnings. This can help to reduce future tax payments.
Application & Scope
Are some people excluded from Division 296 tax?
Yes. For example, child pension recipients and people who have received structured settlement contributions won’t be taxed under Division 296. Some special funds are also treated differently.
Does Division 296 apply to self-managed Super funds?
Yes, Division 296 tax liabilities apply to SMSFs. Some differences may apply for SMSFs compared to public fund members due to variations in how the funds are set up. For example, public fund members may request money from their fund to cover this tax. SMSFs are entirely responsible for their own tax obligations. While there are a few differences to keep in mind, Division 296 tax liabilities are broadly similar for SMSFs and public fund members.
Will the $3 million threshold increase over time?
No, the Government does not currently plan to index the tax or adjust it for inflation. Assuming the economy continues to inflate over time, it's likely that Division 296 will apply to more and more Australians.
Tax Calculation &
Payment Options
How do I pay this tax?
The Australian Taxation Office (ATO) will send you an official assessment once it receives your tax return and contribution information from your Super fund. You can pay the tax personally or request money from your Super fund to cover it.
What counts as my Super balance?
All funds in your Superannuation account and SMSF individual member balance count toward your Super balance. Some outstanding loan amounts linked to your Super, such as a Limited Recourse Borrowing Arrangement (LRBA) might not be included.
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