The Albanese Government has paused its controversial Division 296 superannuation tax proposal, a measure that would have imposed an extra 15% tax on earnings of super balances above $3 million, as it reconsiders how best to reshape the reform.

The decision follows weeks of internal discussions and growing political and industry criticism. Reports indicate the Prime Minister’s office has stepped in, reflecting concerns about fairness and the broader message the measure sends about aspiration.

The Pressure Points

Two aspects of the proposal drew the sharpest backlash:

• Lack of indexation of the $3 million threshold resulting in more Australians, including younger workers, would eventually be captured through inflation and compounding.
• Taxation of unrealised gains which could create serious cash-flow challenges for SMSFs and investors holding property or other illiquid assets.

Former prime minister Paul Keating lobbied strongly against the design, while industry figures such as Geoff Wilson warned that taxing unrealised profits could shift billions out of super and into housing.

Even large APRA-regulated funds raised concerns, citing messy and costly re-reporting obligations, particularly for members with defined benefit pensions.

Why the Government Stepped Back

The decision to pause appears motivated by sensitivities around voter aspiration and fairness. While Treasurer Chalmers has argued that super tax concessions must be curbed to address inequality, the proposal in its original form risked alienating aspirational Australians.

Economists such as the Grattan Institute’s Brendan Coates have highlighted the intergenerational equity issue, pointing out that generous tax breaks for large balances push the tax burden onto younger workers. Yet modelling by AMP showed that without indexation, even today’s 22-year-olds could eventually exceed the $3 million cap through inflation and compounding.

What This Means for SMSFs and Members

• The Division 296 measure may not proceed in its original form.
• The government still intends to pursue reform, but revised proposals are expected to address indexation and the treatment of unrealised gains.
• SMSF trustees should continue focusing on long-term planning under existing super rules until final legislation is released.

CIB’s View

At CIB, we see this pause as an opportunity for more balanced and practical reform. Stability and confidence are critical to superannuation policy, and abrupt, poorly designed changes risk undermining both.

The growing opposition from industry leaders, from the SMSF Association to APRA funds and private investors, mirrors our own concerns.

The pause should be used as a chance for genuine consultation between government and the superannuation sector.

We will continue to monitor developments closely. Once the government’s revised proposal is released, we will provide clear, practical guidance to help trustees and members adjust their strategies.

CIB support our clients self-managed superannuation in the accumulation, retirement and estate planning phases.

Our skills and experience assist with the design, establishment and strategies required to run an effective fund.

Reach out to Deepak Sachdev, Director Superannuation and his team directly on 02 4721 6000 for experienced guidance and advice.