While the proposed Division 296 legislation (commonly referred to as the “$3 million super tax”) was intended to start from 1 July 2025, the legislation has still not passed through Parliament.

As a result, there remains uncertainty about its final form, timing, and practical impact.

With clients understandably asking what this means for them, our advice remains the same: no immediate action is required, but it’s important to stay informed.

What Is Division 296?

Division 296 is the Government’s proposal to apply an additional 15% tax on earnings within superannuation for individuals whose total superannuation balance (TSB) exceeds $3 million.

• The 15% impost applies in addition to the 15% tax already paid by super funds on taxable earnings.
• The calculation is based on the movement in an individual’s TSB across all super accounts combined, not just one fund.
• The measure captures unrealised gains, meaning you may face a tax liability even where no asset has been sold.
• The assessment would be made by the ATO at the individual level rather than the fund level.

If legislated, Division 296 would apply from the 2025-26 financial year, with the first assessments expected in late 2026.

The Government’s Position

The Federal Government has argued that Division 296 is a “modest” reform that ensures the long-term sustainability of Australia’s superannuation system. It is designed to affect only those with very large balances, estimated to be fewer than 0.5% of Australians.

The Government also notes that defined benefit interests will not be exempt, although the calculation method differs, to ensure fairness across different types of superannuation structures.

Industry and Professional Concerns

Professional bodies, accounting firms and advisers have raised a number of issues with the proposal:

• Unrealised gains – taxing on this basis creates potential cashflow issues, especially for members with illiquid assets such as property or private business interests.
• No indexation of the $3 million cap – over time, more Australians could be caught as inflation and investment growth increase balances.
• Treatment of pension drawdowns – withdrawals in retirement may be included in the calculation, which some argue unfairly penalises retirees.
• Loss utilisation – negative earnings are not refundable, but may be carried forward, which could dilute the intended fairness of the system.
• Estate planning impact – where members pass away, accrued credits may be lost, creating additional complexity for beneficiaries.

These concerns have been echoed by accounting and advisory firms, as well as the SMSF Association, who note that while the measure targets a small group, the design has significant implications.

Where Things Stand

• Not yet law: As at August 2025, the legislation has not passed Parliament. Negotiations with the crossbench are ongoing and amendments remain possible.
• Earliest impact: If passed, Division 296 would apply from 1 July 2025, but no liabilities would arise until after the 2025-26 financial year ends, with assessments likely in late 2026.
• Planning horizon: While there is no need for immediate action, advisers are modelling scenarios for clients near or above the threshold to help prepare for potential outcomes.

What Should You Do Now?

For clients:

• No immediate action required – legislation is not yet in place.
• Stay informed – we will continue to monitor developments and update you as Parliament progresses the Bill.
• Plan ahead – if your balance is approaching or above $3 million, we will work with you to model scenarios and prepare for possible outcomes once the rules are finalised.

Key Takeaway

Although the proposed start date has passed, Division 296 remains unlegislated. If enacted, it will mark one of the most significant changes to superannuation taxation in recent years, impacting a small proportion of high-balance members but setting an important precedent.

For now, the best approach is to stay informed, avoid making premature changes, and be ready to adapt once the legislation is settled.

The CIB View

Division 296 is an important reminder of how quickly superannuation rules can change. Our role is to ensure clients are never caught off guard. While we wait for Parliament to provide certainty, we are actively modelling scenarios, reviewing estate planning considerations, and preparing tailored strategies so that when the legislation is finalised, our clients can act with clarity and confidence.