Division 296, is a proposed additional 15% tax on superannuation earnings attributable to superannuation balances above $3 million. This amount applies in addition to the existing 15% tax on earnings on funds held within accumulation phase.
Following the recent lobsided Federal Election, the Labor government is very likely to implement Division 296 tax. The government plans to implement Division 296 tax from 1 July 2025. The proposed tax will change the way superannuation members with account balances greater than $3m invest their superannuation monies, and leaves retirees questioning whether superannuation remains the most appropriate environment for amounts over $3m.
A bit of history on Division 296 Tax…
Division 296 tax was first announced in the May 2023 Federal Budget.
The government introduced the bill as the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 on 30 November 2023. The bills were referred to a Senate committee but lapsed with the March 2025 election.
After Labor’s recent election victory, it is expected the bill to be re‑introduced and passed, as Labor now have majority government and have support of the Greens in the Senate.
Under the current proposal, the tax would commence 1 July 2025 (applied from FY2025–26), which is consistent with the former May 2023 Federal Budget.
Currently, only 0.5% of superannuation balances are above $3m. Labor projects the tax will raise about $2.3 billion in 2027–28 (first full year) and roughly $40 billion over a decade.
How will Division 296 Tax Work?
Div 296 is designed to reduce the tax concessions for individuals with high superannuation balances. It is a member-level tax, so it applies to an individuals superannuation balance, not the value of the SMSF, where applicable.
The additional 15% tax is applicable to the portion of investment earnings attributable to balances above $3 million. All earnings on the first $3 million remains taxed at current concessional rates, being 15% on funds held in accumulation phase, and tax-free on funds held in a pension environment (transfer balance cap will increase to $2m at 1 July 2025).
For example, suppose your total superannuation balance grows from $3.5m to $4m (will be termed ‘superannuation earnings’) in the financial year, a gain of $500k. Of the $500k gain, 25% will be subject to Div 296 tax (Superannuation Balance of $4m less $3m threshold = $1m / $4m = 25%). The Div 296 tax will be 15% x $500k x 25% = $18,750
Crucially, the tax is measured against total super balance (TSB) at year‑end and includes unrealised capital gains. Negative earnings can be carried forward to offset future liabilities but do not give rise to a refund.
Div 296 tax can be elected to be paid out of superannuation or out of pocket, similar to Div 293 tax.
What’s the issue with Division 296 Tax?
We believe two glaring issues exist with the proposed Div 296 Tax.
- Div 296 Tax includes tax on unrealised capital gains. It’s hard to justify or fathom paying tax on capital gains on an asset that has not been sold, where future selling of the asset may well be at lower values, prompting revenue to the government through ongoing tax on unrealised gains, without equal end benefit to you.
SMSF’s that hold unrealised assets such as property, private assets, agribusiness etc may also face cashflow issues to fund the additional tax. You will see SMSF will steer away from investments in start ups, small businesses and farms.
- The $3m Superannuation threshold is not indexed. While only 0.5% (about 80,000 Australians) of superannuation members have a transfer balance cap of over $3m, having the threshold not indexed will lead to another ‘bracket creep’ where many individuals will end up with a superannuation balance greater than $3m. Research by Diana Mousina from AMP show that a 22-year-old today earning average wages for the rest of their life will breach the $3m cap.
What should you do?
With balances less than $3m superannuation remains the best structure to hold retirement savings. From 1 July 2025, you will be able to hold up to $2m in a tax free pension in retirement with the balance, up to $3m being concessionally taxed at 15% on earnings.
A few considerations:
- Understand your current position and total superannuation balance including amounts in accumulation phase, retirement income streams and defined benefits.
- Review your current superannuation investment strategy to determine the appropriate balance between growth and defensive assets as well as the balance between liquid assets and illiquid assets, to ensure that if you are subject to Div 296 tax, that it does not result in premature sell down of illiquid assets that may incur high transaction costs and selling below market value.
- Considering superannuation contributions and how to allocate these contributions within the family.
- If you are in pension phase, determining whether holding over $3m in superannuation remains the best environment for you, or if there is an amount you can move outside superannuation that provides a more tax-effective investment vehicle.
Div 296 Tax represents a major change to the tax treatment of superannuation funds. For individuals with super balances greater than $3m or individuals planning for the future implications, seeking expert guidance and professional financial advice is suggested.