Significant changes have been announced to the Government’s proposed Division 296 tax on superannuation earnings, which will particularly affect individuals with super balances above $3 million.
For many Australians who have built significant retirement savings—particularly through self-managed superannuation funds (SMSFs)—understanding these changes is essential.
On 13 October 2024, Treasurer Jim Chalmers announced key adjustments aimed at making the proposed tax fairer and more predictable.
Key Updates to Division 296
Unrealised gains removed
Only realised earnings — such as interest, dividends, distributions, contributions, and capital gains — will be assessed.
Start date extended
Implementation has been pushed to 1 July 2026, giving members more time to prepare and plan.
Tiered tax structure introduced
-
30% on earnings between $3 million and $10 million
-
40% on earnings above $10 million
Threshold indexation
Both thresholds will now be indexed to inflation:
-
$3M threshold: Indexed to CPI and increased in increments of $150,000
-
$10M threshold: Indexed to CPI and increased in increments of $500,000
Defined benefit pensions included
If legislated, defined benefit pensions will also fall under Division 296.
Why This Matters
Many Australians have steadily built their superannuation balances over decades through contributions, investment returns, and strategic planning.
With more people’s balances tipped to exceed $3 million in the future, these changes are good news because they lead to reduced tax liabilities compared with the previous proposal.
Individuals and SMSF trustees should use this opportunity to review their superannuation arrangements, investment allocation, and broader wealth plans.
Real-Life Scenarios: How Division 296 Could Apply
Scenario 1: Member with a Balance Below $3 Million
Total Superannuation Balance (TSB): $2.4M
Total Earnings (TE): $120,000
| Calculation | Formula | Result |
|---|---|---|
| Portion of balance over $3M (TSB₁) | Not applicable – balance below threshold | 0.00% |
| Portion of balance over $10M (TSB₂) | Not applicable – balance below threshold | 0.00% |
| Division 296 Tax Liability | No additional tax applies | $0 |
Because the member’s total super balance is below the $3M threshold at 30 June, no Division 296 tax applies, regardless of any higher balance during the year.
Scenario 2: Balance Between $3M and $10M
Total Superannuation Balance (TSB): $5.5M
Total Earnings (TE): $250,000
| Calculation | Formula | Result |
|---|---|---|
| Portion of balance over $3M (TSB₁) | (5.5M − 3M) ÷ 5.5M | 45.45% |
| Portion of balance over $10M (TSB₂) | (5.5M − 10M) ÷ 5.5M | 0.00% |
| Division 296 Tax Liability | (15% × $250,000 × 45.45%) + (10% × $250,000 × 0%) | $17,043.75 |
In this example, the additional Division 296 tax payable is $17,043.75 on total earnings of $250,000
Scenario 3: Balance Above $10M
Total Superannuation Balance (TSB): $15M
Total Earnings (TE): $1M
| Calculation | Formula | Result |
|---|---|---|
| Portion of balance over $3M (TSB₁) | (15M − 3M) ÷ 15M | 80.00% |
| Portion of balance over $10M (TSB₂) | (15M − 10M) ÷ 15M | 33.33% |
| Division 296 Tax Liability | (15% × $1,000,000 × 80%) + (10% × $1,000,000 × 33.33%) | $153,330 |
In this example, a total super balance of $15M results in an additional Division 296 tax liability of $153,330 on earnings of $1M.
Planning Opportunities Before 1 July 2026
- Review investment allocation to balance income and growth
- Consider withdrawals or restructuring to manage balances above $3M
- Assess whether additional contributions remain tax-effective
- Explore opportunities to diversify wealth outside of superannuation
Our View at Walshs
At Walshs, we welcome the removal of unrealised gains from the proposal, as this makes the tax fairer and more predictable. However, the higher tax rates for large balances make it more important than ever to plan strategically.
Our SMSF and financial planning team is helping clients model projected Division 296 liabilities, identify restructuring opportunities, and develop tailored strategies to reduce future tax impacts.
Next Steps…
If your super balance is approaching or exceeding $3 million, now is the time to start planning—not in 2026.
Contact our team at Walshs to review how Division 296 could impact your retirement savings and to explore strategies to minimise unnecessary tax.
07 3221 5677
www.walshs.com.au/book-a-meeting
enquiries@walshs.com.au
| Sam Myers – Walshs SMSF Division Manager |
