The Australian Government is introducing a new superannuation tax rule known as Division 296 Tax, set to come into effect on 01 July 2025. While it’s still in draft form, it has already sparked widespread discussion, especially among high-income earners and those with substantial superannuation balances. Division 296 Tax explained simply, is an additional tax that may apply to individuals whose superannuation balances exceed a certain threshold.
It is important to note that there is a full year, from 01 July 2025 to 30 June 2026 before any tax is calculated and applied.
So, what exactly is Division 296 Tax, who will it affect, and why might it be best to wait before making any hasty decisions?
Division 296 Tax Explained
Division 296 Tax is a proposed additional 15% tax on superannuation earnings for individuals with a total super balance above $3 million. This is on top of the current concessional tax rate of 15%, effectively doubling the tax on earnings for affected individuals.
In other words, if your super balance exceeds $3 million, the growth attributable to the amount above that threshold may be taxed at a total effective rate of 30%.
Who Will Be Affected?
Division 296 is aimed at high net worth individuals with significant superannuation balances. According to Treasury estimates, around 80,000 Australians will be affected when the measure first takes effect, though this number is expected to grow over time.
Why? Because the $3 million threshold is not indexed. That means it won’t increase with inflation or account for the natural growth of superannuation balances through investment returns. As a result, more Australians may find themselves caught by this tax in future years, even if they’re no longer making substantial contributions.
This makes it especially important for those approaching the $3 million mark to stay informed and seek professional advice to understand how their retirement savings might be impacted.
How Will It Be Calculated?
Unlike regular income taxes, Division 296 Tax isn’t based on realised gains (e.g. selling assets). Instead, it’s calculated using an individual’s change in total super balance from one year to the next, including unrealised capital gains. That means you could be taxed on paper gains, even if you haven’t sold any investments.
This marks a significant shift in how super is taxed and introduces complexity and volatility into the system.
Why the ”Wait and See” Approach?
It can be tempting to make immediate changes in response to Division 296, especially if your super balance is near or over the $3 million mark. But, before acting, consider these key reasons to take measured, strategic approach:
- Legislation is not yet final: Division 296 is still in draft form and undergoing consultation. There is potential for changes to the details, including how earnings are calculated, exemptions, or thresholds. Acting now based on incomplete information could lead to unnecessary complexity or unintended outcomes.
- Technical details are still emerging: Critical aspects, such as how unrealised gains will be valued or how super funds will report balances, are still being clarified. Once the final framework is known, it will be easier to assess the true impact and tailor your strategy accordingly.
- There are still benefits to keeping funds in super: Despite the proposed tax, super remains one of the most tax-effective investment environments in Australia. Withdrawing funds early or restructuring without advice could result in capital gains tax, lost opportunities, or reduced retirement flexibility.
- Personalised advice matters more than ever: Everyone’s situation is different. The right approach depends on your age, asset mix, retirement timeline, and broader financial goals. A well timed, tailored strategy can help manage any additional tax exposure, without sacrificing long-term wealth creation.
What Should You Do Now?
- Stay informed: Keep an eye on updates as the legislation progresses.
- Talk to your Adviser: Your financial planner can model your super balance and forecast whether you’re likely to be affected, and when.
- Review your strategy annually: As with all financial planning, your strategy should evolve with your circumstances, goals, and any regulatory changes.
We are closely monitoring the progress of Division 296 and will provide updates as soon as the final legislation is passed.
