The Australian Federal Government has proposed a new tax measure known as Division 296, aimed at reducing tax concessions for individuals with very high superannuation balances. For individuals and business owners across Melbourne, including many of our clients in Blackburn, this measure could change the way large superannuation balances are taxed and managed.
While not yet law, it has significant implications for those with balances exceeding $3 million, so let’s explore what this could mean for you.
What is Division 296?
Division 296 introduces an additional 15% tax on a portion of annual superannuation earnings for individuals whose total superannuation balance (TSB) exceeds $3 million at 30 June each year.
This additional tax applies to all superannuation accounts held by an individual including self-managed super funds (SMSFs), industry funds, retail funds and certain defined benefit pensions.
It is important to note that Division 296 is not yet law. It must pass both the House of Representatives and the Senate before taking effect.
When will Division 296 apply?
- The proposed commencement date is 1 July 2025.
- First assessments: after individuals lodge their 2025-26 tax return.
This means that if this law does come into effect, there is time to be proactive before the first assessment date.
Who could be affected?
Division 296 targets individuals with a total superannuation balance above $3 million at 30 June.
Unlike many superannuation thresholds, the $3 million cap is not indexed. This means the cap is not set to increase in line with inflation, so over time many more Australians may be affected as balances grow with inflation and compounding investment returns.
Q: Will I pay Division 296 tax if my super balance is under $3 million?
A: No. If your TSB is below $3 million on 30 June, Division 296 will not apply for that year.
How will the Division 296 tax be calculated?
The ATO has outlined a multi-step process for calculating the Division 296 tax:
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Determine eligibility
- If your TSB at 30 June is below $3 million, no Division 296 tax applies.
- If it exceeds $3 million, continue.
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Calculate net earnings
Net earnings = Closing balance – Opening balance – Contributions + Withdrawals
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Calculate the proportion above $3 million
Proportion = (TSB at end of year – $3 million) ÷ TSB at end of year
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Calculate taxable earnings
Taxable earnings = Net earnings × Proportion above $3 million
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Apply the tax rate
Division 296 tax payable = 15% × Taxable earnings
Q: Does Division 296 tax unrealised gains?
A: Yes. Division 296 may apply to growth in asset values even if the assets are not sold, which can create cash flow challenges for SMSFs holding property or other illiquid investments.
Additional considerations
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Tax on unrealised gains
Growth in asset value may be taxed even without a sale. It’s a good idea to get professional financial advice on the potential impact so you know where you stand.
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No refunds for losses
If balances fall, you cannot claim a refund, but you may carry forward losses to offset future liabilities. Your financial advisor will be able to help manage this most effectively.
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Individual-level tax
The Division 296 tax is assessed per individual, not per fund. Individuals can choose to pay personally or release funds from superannuation. Remember to seek expert wealth management advice, including considering implications for superannuation compliance factors, in order to manage your transactions for maximum tax effectiveness, and within the bounds of tax law.
Q: How will Division 296 affect SMSFs?
A: SMSFs across Australia will be affected. People with concentrated assets such as property in areas such as Blackburn and other Melbourne suburbs could face liquidity pressures, as unrealised gains may still attract tax under Division 296. Trustees may need to review asset structures and cash flow planning with a superannuation or wealth management advisor.
What you can do now
- Prepare, don’t panic — Division 296 is still a proposal and may change before becoming law.
- Review your balances – estimate your total superannuation balance annually, especially if approaching the $3 million threshold.
- Consider asset restructuring – ensure liquidity within your SMSF to cover possible Division 296 tax liabilities.
- Keep accurate records – ensure valuations and fund documentation are up to date.
- Seek professional advice – speak to an accountant or financial advisor before making major superannuation changes.
Division 296 checklist
- Estimate your total superannuation balance at 30 June each year
- Consider how future contributions, withdrawals or defined benefit pensions may impact your balance
- Review your investment strategy and liquidity
- Keep asset valuations accurate and documented
- Book a meeting with your accountant or advisor for tailored advice
Key points to remember
- Division 296 is not yet law – no immediate action is required
- The measure is targeted – only Australians with super balances above $3 million will be affected
- Super remains a tax-effective retirement vehicle despite the change
- Staying informed is critical – don’t make decisions based solely on media headlines
Plan ahead with LDB
If you are unsure whether Division 296 may affect you, or you want to manage your exposure proactively, LDB’s superannuation specialists and tax advisors can help you review your strategy and plan with confidence.
Our team is based in Blackburn, Melbourne, and we work with clients across Victoria and Australia. Whether you need an SMSF accountant, a tax advisor, or support with retirement planning, we’re here to assist.
Call us today on (03) 9875 2900, visit our Blackburn office in Melbourne, or get in touch online to speak with an LDB advisor about Division 296 and your superannuation.
Or you can follow LDB on LinkedIn for updates on tax, superannuation and business advice.
