Changing their tune: Government rethinks Division 296 tax

It’s been one of the most divisive superannuation 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 superannuation balances over time. 

After two and a half years of criticism and consultation, it seems the government has finally heeded the feedback. This week’s announcement signals a significant rethink, addressing some of the biggest sticking points in the proposed legislation and steering it towards a more balanced and practical approach. 

A quick recap 

Under the original proposal, individuals with total superannuation balances over $3 million at the end of a financial year would pay an additional 15% tax on the portion of their earnings above that $3 million threshold. This was on top of the existing taxes already applied to super. 

Two particular aspects drew a lot of criticism: 

1. The proposal would have taxed unrealised gains which was a first in Australian tax history. 
2. 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. 

• 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. 

 It’s fair to say that this announcement sends Treasury back to the drawing board. According to the government’s media release, “Treasury will consult on implementation details including the best approach to the calculation of future realised gains and attribution to individual fund members.” 

What does this mean for you? 

While the removal of tax on unrealised gains will come as a major relief to many high-balance super members, the practical details remain unclear. We’ll need to see how Treasury defines and calculates realised gains, and how these rules will apply. 

If your super balance is close to, or above, the $3 million mark, now is the time to review your strategy. Understanding how these changes could affect your long-term retirement plans, and whether restructuring your investments might be worthwhile, will be essential once more detail is released. 

Contact our expert advisors today to secure your financial future.