Understanding Division 296: What the proposed super tax really means

From 1 July 2025, the Government is proposing a new tax—Division 296—for individuals with a total superannuation balance (TSB) exceeding $3 million. If legislated, the tax would apply an additional 15% on the earnings attributed to the portion of a member’s balance above the $3 million threshold.

While this has prompted concern and debate, several aspects of the proposal are frequently misunderstood.

Key clarifications

• It’s not an automatic tax for balances over $3 million.
  There is no instant tax triggered simply by exceeding the threshold. The calculation is based on the change in your super balance from the start to the end of the financial year—specifically, from 1 July 2025 to 30 June 2026.

• It’s not a flat 15% tax on all growth.
  The 15% tax only applies to the portion of earnings associated with the part of your balance over $3 million. This means the effective tax rate will always be lower than 15%.

• It doesn’t affect how your SMSF is currently taxed.
  Division 296 is an entirely separate tax and does not alter the existing superannuation tax framework, including for self-managed super funds.

• No tax is payable until the 2027 financial year.
  If legislated, the first payments would not be due until after the end of the 2025–26 financial year, allowing time for individuals to prepare.

Still a proposal—and under review

It’s important to note that Division 296 is not yet law and may change before being finalised. Several organisations, including the SMSF Association, have voiced concerns and are actively advocating for revisions to the design of the legislation. Their key points include:

• Excluding unrealised gains from taxable earnings.

• Introducing a refund or loss carry-back mechanism rather than only carry-forward losses.

• Indexing the $3 million threshold over time.

What next?

Even with the proposed changes, superannuation remains a highly tax-effective investment structure for most individuals. Those with balances approaching or exceeding $3 million should speak with their accountant or adviser to consider potential impacts and develop a tailored strategy.