For a detailed overview of the original Division 296 proposals and common misconceptions, see our previous blog: Division 296 Superannuation Tax Explained: Common Myths Debunked.
Treasurer Jim Chalmers has announced significant updates to the Government’s proposed Division 296 superannuation tax, part of the “Better Targeted Super Concessions” policy. TThe changes respond to industry feedback and aim to make the tax fairer and more practical for high-balance super funds.
For individuals and SMSF trustees with super balances over $3 million, understanding these updates is crucial for planning, cashflow management, and long-term tax efficiency.
A quick recap – What is Division 296 Tax?
Division 296 targets earnings on superannuation balances above $3 million. Previously, the tax was proposed to include both realised and unrealised gains, meaning super fund members could face extra tax even if they hadn’t sold assets.
The recent revisions now focus only on future realised earnings, addressing concerns about cashflow issues and administrative complexity, especially for SMSFs or funds holding illiquid assets like property, private equity, or unlisted investments.
This tax is separate from existing superannuation tax rules, and it will apply in addition to the standard 15% tax on concessional contributions and earnings.
Key Updates to Division 296
1. Delayed Start Date
The implementation of Division 296 has been pushed back by one year to 1 July 2026, with a focus on a taxpayer’s Total Super Balance (TSB) as at 30 June 2027.
This delay provides valuable time for:
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Trustees and advisers to plan strategies
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SMSFs to assess liquidity and expected earnings
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Individuals to model potential tax impacts before the first assessments in 2027–28
2. Progressive Tax Thresholds Introduced
The revised framework introduces a tiered approach to better target super earnings:
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Balances up to $3 million: 15% tax on earnings
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Balances between $3 million and $10 million: 30% tax on earnings
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Balances above $10 million: 40% tax on earnings
Both thresholds will be indexed over time in line with inflation and the Transfer Balance Cap, ensuring fairness and reducing the risk of bracket creep.
3. Tax Applies Only to Realised Earnings
The new rules apply only to realised earnings such as:
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Interest
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Dividends
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Rent
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Realised capital gains
This change eliminates the risk of cashflow pressures for fund members who hold illiquid assets and removes the need to sell investments simply to fund tax payments.
4. Defined Benefit Schemes Receive Parity
The updates ensure defined benefit funds are treated fairly. Treasury will provide guidance on the calculation method so that members of these schemes have comparable tax outcomes to those in accumulation accounts.
Implications for High-Balance Super Members
These updates have several important implications for super fund members with balances over $3 million:
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Cashflow planning is easier: Only realised earnings are taxed, reducing the risk of forced asset sales.
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Investment strategy matters: Timing realisations and reviewing asset allocation will be critical.
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Estate and succession planning: Additional tax on balances over $3 million can affect estate planning strategies and fund distribution.
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Opportunity to plan proactively: The delayed start date allows trustees and advisers to model likely exposure and develop strategies to minimise tax.
Planning Considerations
Even with these changes, strategic planning remains essential:
- Review your Total Super Balance (TSB) – Know where you sit relative to the $3 million and $10 million thresholds.
- Assess potential realised earnings – Plan to manage cashflow and tax obligations effectively.
- Align super with estate planning strategies – High-balance super funds intersect with broader wealth transfer planning.
- Stay informed – Legislation is yet to be finalised; keep up to date with updates from Treasury and the ATO.
Key Takeaways
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Division 296 now features a progressive, tiered tax structure with indexed thresholds.
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Tax applies only to future realised earnings, not unrealised gains.
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The start date is deferred to 1 July 2026, giving a buffer to prepare strategies.
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High-balance super members and SMSFs should model potential impacts and review liquidity, asset allocation, and estate planning.
These changes further subdue the impact of additional tax on self-funded retirees, relative to what was originally proposed. It is our view that only at the top tier (i.e. $10M+ member fund balances), where proposed tax rates are 40%, require comprehensive consideration as to opportunity cost and alternative vehicles for investment. The practical impact of the tax is unlikely to modify strategy for most other self-funded retirees.
Next Steps
The latest Division 296 updates mark a significant improvement on the original proposals. For trustees and individuals with high super balances, now is the time to:
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Reassess your super fund strategy
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Evaluate the timing of asset realisations
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Plan for cashflow and tax efficiency
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Consult a professional adviser to ensure compliance and long-term growth
At New Leaf Advisory, we help high-balance super members and SMSF trustees understand the potential impact of Division 296 and implement tailored strategies to manage tax exposure while maximising superannuation growth. Get in touch today .