With Labor securing re-election, it’s looking increasingly likely that Division 296 will move forward. For individuals with super balances over $3 million, this could mean facing a higher tax rate. How will this affect your superannuation and long-term investment planning? Let’s take a look.
What is Division 296?
Under the proposal, if your super balance is over $3 million at the end of a financial year (starting 30 June 2026), you’ll pay an extra 15% tax on the portion of your super’s earnings that relate to the amount above $3 million.
This is on top of existing taxes already applied to super.
Why is this tax a big deal? It would apply to unrealised gains – that is, increases in asset values that haven’t actually been sold. Traditionally, tax is only applied to realised gains, so this marks a significant shift in how superannuation is taxed.
The good news? Historic unrealised gains won’t be taxed, only future gains from the point the legislation is enacted.
It is also important to note that the $3 million threshold applies on a per member basis, not to the super fund as a whole.
Will Division 296 change in any way?
We will have to wait and see. Two parts of the original legislation sparked the most concern:
- Taxing unrealised gains for the first time in Australian taxation history
- The $3 million threshold not being indexed, meaning as inflation increases, the threshold will remain the same, capturing more people over time.
While many have called for tweaks, the government hasn’t shown much interest in changing anything so far.
Is the Division 296 likely to proceed?
Although the legislation still needs to pass Parliament, all signs point to it still being on the government’s agenda.
With the Senate’s balance shifting from 1 July 2025, likely making it easier for Labor to get laws passed, the path to moving ahead is looking clearer.
Will the start date change?
Originally, Division 296 was going to begin from 1 July 2025. There’s been no word on whether that start date might shift, but it’s possible the government could stick with that timeline.
How is the tax calculated?
Let’s break it down with an example.
Meet Grace:
- At the start of the year (30 June 2025) Grace had $3.5 million in super
- During the year, she withdrew $100,000 and received $30,000 in employer contributions
- At the end of the financial year (30 June 2026), Grace’s total super balance was $4 million
What does this mean for Grace?
Step 1: Check if the tax applies
Grace’s balance is more than $3 million – yes, the Division 296 tax applies to her.
Step 2: Work out what percentage of her balance is above $3 million
Since she has $4 million, and the first $3 million is not impacted by this rule, only 25% of her balance applies.
Step 3: Adjust her super balance for the year
To calculate how much her super “earned” during the year, we adjust her final balance to factor in the withdrawal and contributions:
- End of year balance: $4,000,000
- Add: $100,000 withdrawal (because taking money out reduces the year-end balance)
- Subtract: $25,500 (which is 85% of her $30,000 concessional contributions — this reflects the after-tax value)
- Adjusted balance: $4,074,500
Step 4: Calculate her earnings for the year
Now we subtract her starting balance from her adjusted ending balance:
- $4,074,500 – $3,500,000 = $574,500 in earnings
This is how much her super grew during the year, after accounting for contributions and withdrawals.
Step 5: Work out how much of those earnings are taxable
Only the portion of her super over $3 million (25%) is subject to the new tax:
- $574,500 × 25% = $143,625 in taxable earnings
Step 6: Calculate the Division 296 tax
- $143,625 × 15% = $21,543.75
This is the extra tax Grace would pay for that financial year under the proposed Division 296 rules.
What does Division 296 mean for you?
For most, superannuation will still be a better tax outcome to other structures. However, this depends on the assets held outside of superannuation and so needs to be considered on an individual basis – there is no ‘right’ answer that will fit everyone.
There will also be a few with SMSFs holding particular assets that might want to review their strategy to ensure the most appropriate structuring for them.
What should you do next?
If you think your super might exceed $3 million by mid-2026, it’s worth talking to your financial advisor to understand how this tax might affect you and whether you should make any changes to your strategy.
We’ll keep a close eye on the final version of the law and let you know once it’s passed.
If you have questions about how the new tax could impact your superannuation or need tailored advice on planning options, our team is here to help. Reach out to our trusted advisors today.
Sam is the Partner of Cutcher & Neale's Superannuation Division. He believes that with continual changes to Superannuation, it's essential to stay ahead and develop tactical strategies for our clients to ensure their wealth is protected and secured.
With a wealth of knowledge and experience, Sam takes a hands-on, personal approach to ensure our clients have the very best plans in place from the very beginning.
