The Federal Government has announced a series of important updates to the Division 296 superannuation tax proposal, now forming part of the Better Targeted Superannuation Concessions (BTSC) policy.
These changes aim to make the system fairer by reducing excessive tax concessions for those with very large super balances while preserving the concessional environment that benefits most Australians.
What is Division 296?
Division 296 introduces an additional tax on superannuation earnings for individuals whose total super balance exceeds $3 million. It operates alongside the existing 15% tax on super earnings, but will apply only to earnings on the portion of the balance above that exceeds $3 million.
Key principles include:
- Applies only to individuals with super balances above $3 million
- Taxes only “realised earnings”, not unrealised capital gains
- Introduces a progressive, tiered tax rate system
- Thresholds will be indexed to inflation
- Commencement delayed to 1 July 2026
This delay gives super fund members, advisors and the industry time to prepare for implementation and clarity around how realised earnings will be defined.
Key changes announced in October 2025
After extensive consultation with the superannuation industry, self-managed super funds (SMSFs), and advocacy groups, the Government released several updates to the original proposal.
1. Start date delayed to 1 July 2026
The new start date pushes the first assessment year to 2026 – 27, allowing time to:
- Finalise the legislative framework
- Precisely define “realised earnings”
- Engage with funds and stakeholders on implementation
2. Two-tier tax rates
A progressive model will apply to large balances:
| Super balance range |
Additional Division 296 tax rate |
| $0 – $3 million |
No additional tax |
| $3 million – $10 million |
15% on realised earnings |
| Over $10 million |
30% on realised earnings |
These rates apply in addition to the existing 15% tax inside super.
3. Thresholds indexed to inflation
Both the $3 million and $10 million thresholds will rise over time in line with the Transfer Balance Cap to prevent bracket creep.
4. Only realised earnings will be taxed
Earlier drafts would have taxed unrealised gains. The Government has removed this element, avoiding complex valuations and cash-flow issues for SMSFs and funds holding illiquid assets such as property or private equity.
Treasury will work with industry to clarify:
- How realised earnings are calculated
- How they are attributed to individual members
- How reporting will be kept consistent across fund types
5. Defined benefit fund parity
Members of defined benefit schemes will receive equivalent treatment to those in accumulation funds. The Treasury will consult on assessment methods and possible exemptions for specific groups (such as judicial officers).
Example: How Division 296 will apply
Let’s assume you have a $4 million total super balance and your fund earns $200,000 in realised net earnings for the year.
Step 1: Apply the standard 15% tax inside super
$200,000 × 15% = $30,000
Step 2: Apply the extra Division 296 tax (on $1 million above the threshold)
25% of the earnings ($50,000) relate to the excess.
$50,000 × 15% = $7,500
Total tax paid: $37,500
Effective tax rate: 18.75%
How will the Division 296 tax be paid?
The Australian Taxation Office (ATO) will calculate the Division 296 liability using data reported by super funds. Members will receive a personal assessment notice and can either:
- Pay the tax personally, or
- Elect to release the amount from their super fund.
Who will be affected by Division 296?
Many Australians are asking, “Will Division 296 affect me?”
This tax does not apply to people with less than $3 million in super, to unrealised gains or to defined benefit pensions below the parity threshold.
It will apply to:
- High-net-worth individuals with >$3 million in super
- SMSFs with significant realised capital gains or income
- Members who may cross the threshold in future as balances grow
Planning considerations for high-balance members
If your total super balance is close to or above $3 million, consider the following steps early:
- Track your Total Super Balance (TSB) across all funds.
- Engage a qualified advisor to model potential Division 296 exposure.
- Review investment timing and asset sales to manage how earnings are realised.
- Plan withdrawals or re-contributions if appropriate.
- Stay informed as final legislation and ATO guidance are released.
What the latest changes mean for you
The latest reforms create a fairer and more workable system by:
- Removing tax on unrealised gains
- Introducing tiered tax rates (15% and 25%)
- Indexing thresholds for inflation
- Delaying commencement until 2026
For most Australians, Division 296 will have no impact. However, those with large balances or complex SMSF structures should seek advice now to understand how the changes may affect future tax and retirement outcomes.
Talk to LDB
At LDB, our accountants and tax advisors in Blackburn, Melbourne, can help you interpret the Division 296 reforms, model your superannuation exposure and ensure your records are accurate as legislation evolves.
Call us today on (03) 9875 2900 or get in touch online to discuss how these superannuation tax changes may affect you.
Or you can follow LDB on LinkedIn for updates on tax, superannuation and business advice.
