Now that the Labor government has secured re-election, It is likely that one of its most controversial superannuation reforms is officially going ahead.

The Division 296 tax, set to commence from 1 July 2025, introduces a new 15% tax on certain earnings for individuals with total superannuation balances exceeding $3 million.

This change has significant implications for high net wealth individuals—particularly SMSF members—and it’s important to start planning now.

What is the Division 296 Tax?

From the 2025–26 financial year onwards, individuals whose total superannuation balance (TSB) exceeds $3 million at 30 June will be subject to an additional 15% tax on a proportion of their superannuation earnings. This effectively raises the tax rate on those earnings from 15% to 30% for the portion above the $3 million cap.

Importantly, this new tax applies to both realised and unrealised earnings, meaning you may be taxed on increases in the value of your investments even if you haven’t sold them.

How Will It Be Calculated?

The ATO will calculate the Division 296 tax annually using a formula based on changes in your super balance:

1. Earnings = Closing TSB − Opening TSB (adjusted for contributions and withdrawals)
2. Proportion of TSB above $3 million is identified
3. Tax = 15% of earnings attributable to that excess

Example:

• Total super balance at 30 June 2026: $4 million
• Amount above $3 million threshold: $1 million
• Proportion over threshold: 25%
• Earnings during year: $200,000
• Division 296 tax = 15% of $50,000 = $7,500

Why This Matters to You

This tax brings several key challenges:

• Unrealised Gains Taxed: You might owe tax on gains that only exist on paper.
• Cash Flow Strain: Especially problematic for SMSFs holding property or other illiquid assets.
• Cap Not Indexed: The $3 million threshold won’t adjust for inflation, so more Australians will be affected over time.
• Valuation Complexity: Accurate and timely reporting will be more important than ever.

What Should You Do Now?

If your super balance is approaching or exceeding $3 million OR you have any concerns, here’s how we can help you prepare:

• Review investment strategies – particularly those involving volatile or hard-to-value assets.
• Consider pension vs accumulation options – to manage how earnings are taxed.
• Look into re-contribution and withdrawal strategies – to reduce taxable components where appropriate.
• Plan for liquidity – ensuring you can meet any tax liabilities without distress sales.
• Estate planning review – Division 296 may have indirect impacts on death benefit taxes and member balances.

How We’re Assisting Our Clients

At CIB, we’re working with our clients to model the impact of Division 296 on their super funds and develop personalised strategies to mitigate unnecessary tax exposure.

Whether you have an SMSF or an industry/retail fund, it’s essential to get ahead of these changes early.

Get in Touch

If you have concerns about how Division 296 may affect you, please get in touch with our office. We’ll help you navigate the new rules and ensure you’re well-positioned to face this new tax.

More Super news updates here.