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.
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.
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 $65 billion (as at 31 December 2024) 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
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.
Does the tax apply to all my unrealised gains?
No, the proposed tax will only apply to unrealised gains over $3 million. Unrealised gains up to this amount will not be taxed as part of this legislation.
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.
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.
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.
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.
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.
What if I’m about to make a big profit inside my Super?
Large capital gains inside Super need careful tax planning. Division 296 applies each year to any unrealised gains, but Super funds can still offer tax advantages when selling assets.
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.
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.
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.
My SMSF investments include non-liquid assets such as property, land and art. How will I pay unrealised gains on these?
The tax is calculated on your Total Superannuation Balance but is a personal tax. It is payable personally by you or you can choose to pay it from your Super fund. If you will be affected by the Division 296 tax and do not have available assets outside of Superannuation, you should look to change your investment structure into more liquid assets to pay the tax.
My Super balance is currently under $3m but it is on track to be over $3m when I retire. What should I do, should I change my strategy?
The proposed tax does not include indexation, which means while you are not impacted now you may be impacted in future. Whilst the Division 296 tax may make it less beneficial than current rules to grow your Superannuation balance above $3 million, it still may be the most tax effective structure available to you. Consideration should be given to what investment entities are available to you with a total tax rate under 30% that you could divert excess capital towards.
Who is better to speak to about this new tax, my accountant, or a financial adviser?
The proposed tax applies on your Superannuation funds however the options available to reduce the impact involve all your investment entities. This is in addition to the balance between income and growth with your entities. Therefore, a collaborative approach between all your professional advisers is required for the best outcome for your specific circumstances.
Should I give my beneficiaries their inheritance now to avoid the tax over $3m in Super?
If you are impacted by the new tax, one method to reduce the impact is to gift excess funds to beneficiaries on a lower tax rate. Alternatives like family or discretionary trusts may allow you to retain control of capital, while distributing income to your beneficiaries at a lower tax rate.
However, you should seek professional financial advice before making decisions.
Insights that count
Discover the best opportunities to outperform the market. Our research team dig deep into the market, company and stock data to bring you insights others might overlook.
Division 296 Tax: What high net worth Australians need to know about the proposed $3m Superannuation changes
Australians with high Superannuation balances may soon face major changes to how their retirement savings are taxed.
Important Information
This webpage provides general information only and does not constitute financial, investment, or tax advice, and should not be relied on take make financial, investment or taxation decisions. The information is based on proposed legislation and current publicly available information as of May 2025, which may be subject to change. Individuals should seek professional advice tailored to their specific circumstances before making any decisions.
.jpg)