From 1 July 2025, a new superannuation tax rule—Division 296—is set to apply to individuals with total super balances over $3 million.

While not yet legislated, the proposal represents a major shift in how higher-balance superannuation accounts are taxed, and it’s important to understand the implications.

What Is Division 296?

Division 296 introduces an additional 15% tax on earnings related to the portion of your super that exceeds $3 million. This is on top of the existing 15% tax in the accumulation phase, taking the effective rate to 30% on the affected portion.

A major point of concern is that it includes unrealised gains—investment growth that hasn’t been sold or received.

When and How Is It Calculated?

Your Total Superannuation Balance (TSB) is measured at 30 June each year, but only confirmed after your tax return is lodged. This delay makes it harder to plan.

Example:

• TSB at the start of financial year (FY): $3.7 million

• TSB at the end of FY: $4 million

• Excess portion over $3 million: $1 million

• % of your TSB: $1m divided by $4m = 25% 

• Earnings for the year: $4m minus $3.7m = $300,000

• Taxable earnings: $300,000 × 25% = $75,000

• Division 296 tax: $75,000 × 15% = $11,250

Only the earnings related to the portion above $3 million are taxed.

What’s Included in “Earnings”?

The earnings calculation includes:

• Income (e.g. rent, interest, dividends)

• Less fund expenses

• Plus: growth in the value of investments, including unrealised gains

Importantly, if your super fund experiences negative returns later, these losses can be carried forward but not refunded.

Key Challenges

There are a number of practical concerns:

• Illiquid funds (e.g. direct property) may not have cash available to cover the tax.

• Timing delays mean first tax bills might not arrive for up to two years.

• Interest on unpaid tax is no longer deductible from 1 July 2025.

• Potential for double taxation, as gains taxed under Division 296 may also attract CGT when assets are eventually sold.

Planning Ahead: Key Strategies

We are working with clients to consider proactive steps, including:

1. Rebalancing Super

Spouse splitting and recontribution strategies may reduce individual balances below the threshold.

2. Withdrawing Before 30 June

Where accessible, drawing funds to reduce your 30 June balance below $3 million may eliminate Division 296 exposure.

3. Structuring Outside Super

Interest in family trusts and investment companies is growing. These offer:

• Tax only on realised earnings

• Flexibility in income distribution

• Franking credit accumulation

4. Managing Valuations

For SMSFs with unlisted assets, careful attention to valuations before 30 June can help control growth figures and tax exposure.

As always, correct setup of these structures is critical—including ownership, trustee appointments, family trust elections, and robust documentation.

Final Thoughts

While Division 296 has not yet been legislated, it reflects a broader trend of regulatory pressure on high-balance superannuation accounts. It presents both a risk to manage and an opportunity to reassess how your retirement wealth is structured.

If your superannuation balance is likely to exceed $3 million in the coming years, early and strategic planning will be key. We’re here to help you assess the impact, manage your options and structure your wealth appropriately for the long term.

General Advice Warning
The information in this article is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your personal circumstances. We recommend seeking advice from a licensed financial adviser before making any financial decisions. This material is provided in accordance with the general advice provisions of the Corporations Act 2001 (Cth).