It’s been one of the most divisive super debates in recent memory. Since the Division 296 tax was first proposed, it’s sparked concern across the financial sector, from industry bodies and tax professionals to everyday Australians with well-earned retirement savings. Many saw it as an overreach, with complex rules that risked penalising those who had simply built their super balances over time.
After three years of criticism and consultation, the legislation has now passed both the House of Representatives and the Senate and is awaiting royal assent. While some changes were made along the way, the final outcome confirms a significant shift in how high‑balance super accounts will be taxed going forward.
A quick recap
Under the original proposal, individuals with total super balances over $3 million at the end of a financial year would pay an additional 15% tax on the portion of their earnings attributable to the balance above the $3 million threshold. This was on top of the existing taxes already applied to super.
Two particular aspects drew a lot of criticism:
- The proposal would have taxed unrealised gains which was a first in Australian tax history.
- The $3 million threshold was not indexed, meaning it wouldn’t move with inflation and would capture more people over time.
What’s changed?
The updated proposal aims to address these issues and add a few extra refinements:
- Tax on unrealised gains has been scrapped. Tax will now only apply to realised earnings.
- Introduction of an optional CGT cost base reset for Divisional 296 tax purposes.
- A new $10 million threshold will be introduced, with earnings above this amount taxed at an additional 25%.
- Both the $3 million and $10 million thresholds will be indexed over time.
- The start date has been pushed back to 1 July 2026.
What does this mean for you?
For members with high super balances, Division 296 represents a clear shift in the long‑standing tax treatment of super. The introduction of an additional 15% or 25% tax on super earnings, requires a review and consideration of your overall wealth position and strategy.
If your total super balance is close to, or above, $3 million, now is the time to review your strategy. Understanding how the Division 296 tax may affect your retirement outcomes, cashflow, investment structure and estate planning will be essential as the commencement date approaches.
Even if you super balance is below $3 million, there could be action to take to minimise the future impact of Division 296 on your super.
With the legislation now passed, proactive advice and careful planning will be key to ensuring your super strategy remains aligned with your long‑term goals.