What Is Division 296 Tax And Who Will It Affect?

This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your Aintree Group accountant.

From 1 July 2025 (pending legislation), an additional 15% tax will apply to the earnings linked to superannuation balances above $3 million per person.

This tax applies across all superannuation accounts, including:

SMSFs; and
Retail and industry funds.

Why is it in place?

To help ensure the superannuation system remains sustainable and equitable.
To bring superannuation tax policy more closely in line with the Sole Purpose Test. Superannuation should be used for retirement savings, not as a tax-minimisation vehicle for wealth accumulation.

How is it different from Division 293 Tax?

Division 293 targets high incomes over $250,000, while Division 296 targets high Total Superannuation Balances (TSB) over $3 million.

Both will reduce superannuation tax concessions, but Division 296 is all about how much wealth is sitting in super, not how much you earn.

Key things to note about Division 296:

$3 million threshold is per member, not per fund.
The tax will apply to the individual, not the fund.
It applies regardless of what phase (accumulation phase or pension phase).
It applies across multiple funds if you have more than one.
The threshold isn’t indexed, meaning the $3 million cap won’t rise with inflation. This means more Australians will be impacted over time.
It applies to unrealised gains.

Potential challenges:

Unrealised Gains.

Aside from contributions, the formula does not discern how the fund has increased in size. Therefore, unrealised gains will be subject to Division 296 tax.

Indexation.

Under the current proposed legislation, the $3 million threshold is not indexed.

Impact.

The tax may cause liquidity issues for members who do not have sufficient cash outside of their superannuation fund to pay the tax and/or do not have liquidity in their superannuation fund due to holding illiquid assets such as Property or Unlisted Investments.

What can you do about it?

Strategies to consider include:

Review your investment strategy and mix of liquid vs illiquid assets.
- Liquid assets = Cash, shares and widely held managed funds
- Illiquid assets = Property, unlisted assets, units trusts and collectables.
Withdrawing funds (if you have access). Be careful of other tax implications.
Redistributing wealth across family members. This could also help minimise Death Benefit Tax.
Do nothing! Depending on your situation, this might actually be the best strategy.

Always seek advice from your accountant and financial planner as this tax interacts with other areas like Capital Gains Tax (CGT) and estate planning.

Division 296 signals a broader shift. The Government is reinforcing that superannuation is for retirement, not a wealth accumulation tool.

The policy aims to keep the system fair and sustainable. But it challenges long-held assumptions about using superannuation as a low-tax investment strategy.

For advice on Division 296 tax and how it may impact you, please reach out to your Aintree Group adviser.