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Division 296 Tax: What You Need to Know (and Why We Should Wait)

May 28, 2025

As part of the Federal Government’s recent superannuation reform agenda, a new measure called Division 296—has been introduced to impose an additional tax on individuals with superannuation balances exceeding $3 million. This has generated a fair amount of discussion (and concern) within the community, but it’s important to separate fact from speculation and understand what this really means—and just as importantly, when it takes effect.

Key Takeaways

  • Division 296 introduces an additional 15% tax on growth in superannuation balances above $3 million.
  • The effective date is 1 July 2025, but the first taxing point is 30 June 2026.
  • There is no need to take immediate action before 30 June 2025.
  • Final legislation is not yet in place—wait until the rules are confirmed before making any strategic moves.
  • Superannuation remains a tax effective environment

Here’s what you need to know right now:

What is Division 296?

Division 296 proposes an additional 15% tax on the growth in total superannuation balances above $3 million. This tax is designed to apply regardless of whether your funds are in accumulation or pension phase, and would apply to the individual, not the fund. This would effectively bring the total tax rate on earnings for affected individuals to 30% on the portion of growth that relates to balances exceeding the $3 million threshold.

One of the main causes of contention with the draft legislation has arisen as a result of the way in which the taxable earnings are calculated. The calculation of taxable earnings works to deduct an individual’s total super balance at the start of the year, from their balance at the end of the year and add back certain reducing items (such as pension payments) and subtracting certain increasing items such as contributions made by the individual (or their employer). However, what is not adjusted for is any unrealised profits made from the fund’s underlying investments which may have an increasing or decreasing effect on the individual’s total superannuation balance. As a result of this, the earnings on which an individual will be taxed includes an unrealised increase (or decrease) in market values, which is at odds with the capital gains taxation regime. Time will tell whether there are any adjustments made before Division 296 becomes legislated.

When Does It Apply?

A common source of confusion has been the start date of Division 296. While the effective date is 1 July 2025, the first taxing point will not occur until 30 June 2026. This is a crucial detail that has some very practical implications:

  • You do not need to take action before 30 June 2025.
  • There is a full year—from 1 July 2025 to 30 June 2026—before any tax is calculated and applied.

Wait for Final Legislation

At this stage, Division 296 is still in draft form. While we have a good idea of the framework, the legislation has not yet passed, and the final details may change.

It is tempting to make quick decisions based on headlines or incomplete information—but we strongly recommend waiting for the final legislation before making any major changes to your superannuation strategy.

We are closely monitoring the progress of Division 296 and will provide updates as soon as the final legislation is passed. When the rules are clear, we will work with you to assess any potential impact and help you plan accordingly—well before the first taxing date of 30 June 2026.

If you have any questions about how this may affect you or would like to discuss your superannuation strategy in more detail, please don’t hesitate to get in touch.