Division 296 Tax Explained: What It Means for High Super Balances in Australia

From 1 July 2025, superannuation balances above $3 million may face additional tax under Division 296. 

 If the legislation passes through the Senate, Australians that have high superannuation balances, (more than $3 million) in their super accounts would be taxed an additional 15% on the earning associated with the portion of their Total Superannuation Balance that exceeds $3 million. If passed, this tax could reshape long-term retirement strategies for individuals and SMSFs alike. So what exactly is Division 296, how is it calculated, and what should you be doing now?

What is the new Division 296 tax?

Division 296 is a proposed 15% tax on the earnings attributed to superannuation balances over $3 million. It applies in addition to the existing 15% tax on concessional earnings within the fund.

This means affected individuals could be taxed at a combined rate of up to 30% on some of their super earnings.

Importantly, the calculation includes both realised and unrealised gains, which has sparked debate over fairness and valuation complexity.

If you’re building wealth for retirement, professional wealth management is key to understanding how this may impact you.

Division 296 ATO updates and latest news

The Australian Taxation Office (ATO) will oversee the calculation of the new tax, using a formula that captures the movement in your total super balance across financial years.

While the legislation has passed the House of Representatives in the previous Parliament and was blocked by the Senate due to concerns related to taxing unrealised gains, at time of writing, Division 296 is expected to be reintroduced at the next Senate hearing.

Until the Bill receives Royal Assent, there is no guarantee or certainty as to if the proposed legislation will take the proposed form or will even be passed at all.

Need help navigating complex tax policy changes? Our Accounting team is here to guide you through.

Division 296 calculation and example

The tax applies only to the portion of your total super balance that exceeds $3 million. The ATO will calculate this using a proportionate earnings formula, even if no money is withdrawn from the fund.

EXAMPLE

Let’s say your total super balance was $3.5 million on 30 June 2025, and $4 million on 30 June 2026. Approximately 25% of the gain is above the $3 million threshold and therefore, 25% of the gain would be subject to the additional 15% Division 296 tax.

While the government will provide a Division 296 calculator, it’s worth seeking advice now to model future liabilities.

What Division 296 means for SMSFs

Self-managed super funds (SMSFs) are not excluded from this legislation. In fact, many SMSF trustees are more likely to be affected due to their higher average balances and concentrated asset holdings.

Valuation accuracy, reporting obligations, and liquidity management will become even more critical.

Whether you’re a trustee or adviser, our experts in SMSF auditing and administration can help ensure compliance while preserving strategy flexibility.

Can you withdraw funds to avoid Division 296?

Yes, but it’s complicated. If you meet a condition of release, withdrawing funds to bring your super balance below $3 million before 1 July 2025 may reduce or eliminate your Division 296 tax liability. This is because the tax is calculated based on your total super balance at the start and end of the financial year. Reducing your balance before the start of the 2025–26 financial year could lower the amount subject to the tax.

However, this approach is not without drawbacks:

• Capital Gains Tax (CGT): Withdrawing assets, especially through in-specie transfers (e.g., transferring property or shares), may trigger CGT within the super fund. This could result in a significant tax liability. 

• Stamp Duty and Other Costs: Transferring assets out of super may incur stamp duty, legal fees, and other transaction costs, particularly for real estate. 

• Higher Personal Tax Rates: Once assets are outside the super environment, any income or gains they generate may be taxed at your marginal tax rate, which could be higher than the concessional rates within super.

• Loss of Superannuation Benefits: Funds withdrawn from super lose the benefits of the superannuation system, such as tax concessions and protection from creditors.

So, while withdrawing funds may reduce your Division 296 exposure, the broader financial impact could outweigh the benefit. It’s essential to speak with your Modoras professional to ensure the strategy aligns with your long-term goals and circumstances.

Is Division 296 law yet?

As of May 2025, the legislation has not yet passed the Senate, but it is widely expected to become law before 1 July 2025.

If you hold or are approaching a $3 million super balance, this is the time to understand your exposure and plan ahead.

Need help reviewing your position?

Division 296 adds a layer of complexity to superannuation strategy. At Modoras, we’re here to simplify the implications and help you make confident decisions.

Book a your appointment with our team today.