Division 296 is one of the most significant proposed changes to Australia’s superannuation tax rules in years. If it becomes law, individuals with large super balances above $3 million may face an additional 15 per cent tax on superannuation earnings attributable to the portion of their super balance exceeding this threshold.
For those with superannuation balances below $3 million, no Division 296 tax will apply regardless of their taxable income or taxable earnings. This proposed bill could affect how high-balance investors plan for retirement, structure their investment portfolio, and manage cash flow inside their superannuation arrangements.
In this article, we break down exactly what Division 296 is, how the tax works, who it will impact, and what you can do to prepare. Our goal is to give property investors and self managed superannuation fund (SMSF) clients a clear, practical guide they can rely on.
What is Division 296?
Division 296 refers to a proposed Australian tax law that would apply an additional 15 per cent tax rate on certain superannuation earnings, including unrealised capital gains. It targets individuals whose Total Superannuation Balance (TSB) exceeds $3 million at the end of a financial year.
Division 296 tax will be assessed individually across all superannuation accounts owned by a person, including those held in a self managed superannuation fund. The calculation methodology for Division 296 tax involves assessing an individual’s total superannuation balance on a yearly basis through a legislative instrument.
The tax is part of the Better Targeted Superannuation Concessions Bill 2023, which lapsed in July 2025 but is expected to be reintroduced in Parliament. If passed, the law would apply from 30 June 2026.
Unlike standard superannuation taxes, Division 296 includes unrealised gains in its calculation. This means you may pay tax payable on increases in the value of your superannuation fund investments even if you haven’t sold the assets, which has raised concerns about unintended consequences.
Importantly, the $3 million threshold is not indexed, so over time, inflation and asset growth could bring more Australians, including adult children inheriting super, into the scope of the additional tax. This makes understanding Division 296 critical for long-term superannuation planning and strategic planning.
How Division 296 Works
Division 296 applies a 15 per cent tax on the proportion of your superannuation earnings that relate to the part of your balance over $3 million. The calculation involves three main steps:
1. Work out your total super earnings
This is calculated as: Closing TSB − Opening TSB + Withdrawals − Contributions. This figure includes unrealised capital gains, meaning growth in asset value counts even if nothing is sold.
2. Determine the excess proportion
Find the portion of your balance above $3 million by dividing the excess amount by your total closing TSB. For example, if your closing balance is $4 million, then $1 million is excess. The excess proportion is 1 ÷ 4 = 25 per cent.
3. Apply the 15 per cent tax rate
Multiply your total taxable earnings by the excess proportion. The result is the amount subject to the additional 15 per cent tax.
Example: If your earnings are $500,000 and 25 per cent relates to the excess balance, then $125,000 is taxed at 15 per cent. The Division 296 tax liability would be $18,750.
Key Rules and Implications
Several important rules shape how Division 296 applies, and each has practical consequences for investors: The proposed Division 296 tax fails to ensure low administrative complexity, which is essential for good tax policy. This could lead to increased compliance burdens for individuals, superannuation funds, and fund managers.
1. Applies at the individual level
The tax is assessed against your total superannuation balance across all funds, including SMSFs and multiple accounts. Balances are aggregated to calculate your excess amount.
2. Includes unrealised gains
You may owe tax payable on increases in asset value even if you haven’t sold the property or investment. This can create liquidity issues, as the tax is due even without cash proceeds. Taxing unrealised gains can result in individuals paying tax on ‘imaginary profits’ if their investment values decline afterwards. Taxing unrealised gains sets a dangerous legal precedent that may result in individuals being taxed on money they do not actually have. The Tax Institute argues that this approach undermines established tax principles by taxing gains that have not yet been realised.
3. No refund for negative earnings
If your superannuation balance falls in a later year, you won’t receive a refund of tax previously paid. Instead, losses can be carried forward to reduce future Division 296 liabilities. The lack of loss carry-back provisions in Division 296 may result in inequitable outcomes for taxpayers. There is no mechanism for refunding Division 296 tax paid in a prior year if an individual’s Total Superannuation Balance falls below $3 million due to negative earnings.
4. Defined benefit pensions are included
These are valued using set factors, which can create different outcomes depending on age, gender, and fund rules.
5. Threshold is fixed
The $3 million threshold is not indexed. Over time, inflation and investment growth will push more individuals into the Division 296 tax net. The lack of indexation of the proposed $3 million threshold raises concerns about bracket creep and fairness. The Tax Institute supports changes that make the tax system more equitable but opposes the taxation of unrealised gains, which they argue could lead to unfair outcomes for taxpayers.
Who Will Be Affected by Division 296?
Superannuation balances held across a broad range of multiple accounts and SMSFs, as all balances are combined to calculate the excess amount.
Balances in retirement phase, even though earnings on these amounts are usually tax-free.
Property investors with rapidly growing asset values inside superannuation funds, particularly those holding commercial or residential farming land or other property in SMSFs.
Individuals who are currently below the threshold but may cross it in future due to investment growth and the lack of indexation.
The tax can apply regardless of whether the balance increase comes from contributions, investment returns, or unrealised capital gains.
Timing, Legislative Updates and Planning Ahead
The Better Targeted Superannuation Concessions Bill 2023, which contains Division 296, lapsed in July 2025 after Parliament was dissolved for the election. However, the new government has signalled that a similar bill is likely to be reintroduced.
If passed, the rules are expected to apply from 30 June 2026, which was the original proposed start date. This means your superannuation balance on that date would be used to determine if Division 296 applies for the first time.
Because the legislation is not yet law, it’s important to avoid making hasty financial decisions. Instead, stay informed by monitoring updates from Treasury and the ATO. It is crucial to wait until the final legislation is passed rather than withdrawing funds prematurely in anticipation of the tax.
For investors approaching the $3 million threshold, early awareness is critical. Introducing Division 296 would force financial decisions based on tax liabilities, contrary to the principle that tax outcomes should not dictate financial decisions.
Planning ahead gives you time to assess your financial situation and understand the potential impact on your superannuation and property holdings. Consultation for the Division 296 tax was inadequate, limiting stakeholders’ ability to provide informed feedback.
Strategies to Manage Potential Exposure to Division 296
While the legislation has not yet passed, investors with large superannuation balances can start considering practical steps to manage potential Division 296 exposure. Common strategies include: Individuals with high superannuation balances should seek tailored advice to navigate the changes and implications for their superannuation arrangements. It is advisable to review current and alternative investment vehicles to identify the most tax-effective strategies moving forward. Superannuation will remain a tax-effective structure for many, despite the new tax.
1. Balancing super between spouses
Contribution splitting or equalising super balances can help keep each individual’s TSB below the $3 million threshold.
2. Reviewing investment structures
Holding some assets held outside super, such as in a family trust or company, may help manage exposure, though this can create other tax considerations.
3. Maintaining liquidity
Because the tax applies to unrealised gains, ensure there’s enough liquid capital in superannuation funds to cover potential tax bills without being forced to sell property or assets unexpectedly.
4. Monitoring growth trends
Track superannuation balances annually, especially for SMSFs with property or farming business assets. Asset growth and the lack of indexation may push balances over the threshold sooner than expected.
Professional advice should always be sought before making any structural changes.
Division 296 Frequently Asked Questions (FAQ)
1. Is Division 296 law yet?
No. The original bill lapsed in July 2025, but the government has indicated it will likely be reintroduced. Division 296 is not yet legislated.
2. Does Division 296 include unrealised gains?
Yes. The calculation includes changes in asset value, even if you haven’t sold the investment. This is why liquidity planning is important.
3. When will Division 296 start?
If the legislation passes, the first test date is expected to be 30 June 2026. Balances on this date will determine whether the tax applies.
4. Will property held in an SMSF be affected?
Yes. Property forms part of your Total Superannuation Balance, so growth in property value can push your balance above the $3 million threshold.
Get Ready for Division 296: Key Takeaways and Next Steps
Division 296 represents a major shift in how high superannuation balances are taxed in Australia. While the legislation is not yet in current form, its eventual introduction seems likely. For property investors and SMSF members, understanding how the tax works and planning early can help reduce uncertainty and manage future liabilities.
Division 296 has been widely criticized as a fundamentally flawed policy design. Critics argue that it goes against widely accepted tax policy design principles, raising concerns about its fairness and practicality.
Reviewing your superannuation balance, investment portfolio, and liquidity position is a smart starting point. Because every circumstance is different, professional tax and financial advice is essential. Staying informed now means you can act with confidence when the rules take effect.
Contact the team at Duo Tax to discuss your SMSF property valuation needs.
