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Division 296 – the proposed new tax on super balances over $3m (and what you can do about it)
- 23 June 2025
- by Adrian D'Mello | Financial Advisor
- 10-minute read
The Australian government is proposing a new tax on individuals with a total superannuation balance of over $3 million. While the legislation has not yet passed—and ongoing lobbying seeks a fairer outcome—it’s wise to start exploring your options now in case the proposal becomes law.
What is the new tax?
It is called the Division 296 tax and, if legislated, would impose an additional 15% tax on earnings attributed to the portion of your superannuation balance above the $3 million threshold.
The tax only applies to any growth not the entire amount over $3 million.
What is classified as earnings?
Earnings include both the income and the capital growth of your investments.
This means regardless of the type of investment (e.g. income producing or growth focused), any earnings form the basis of how this tax is calculated.
If earnings are zero or less than zero in a financial year, this tax won’t apply for that financial year.
How are earnings calculated?
Earnings are worked out by looking at the change in the balance from the start of the financial year to the end.
For example:
- If your super balance grows from $3.5 million to $4 million (from the start of the financial year to the end) the gain is calculated as $500,000
- The proportion of the fund greater than $3 million at the end of the financial year is 25% ($4 million less $3 million divided by $4 million)
- The tax would therefore be $18,750 (15% of 25% of $500,000)
Since the tax is only on the part of the gains exceeding $3 million, the overall effective tax rate will always be lower than 15%.
What if super is held in different accounts?
This proposed new tax pertains to an individual’s total super balance across all super funds. So regardless of whether your super is held in one or more funds, or whether it’s held in a retail fund or a self-managed super fund the total amount will be looked at.
When will it come into effect?
The earliest the legislation could pass is when parliament resumes on the 22nd of July. And it may or may not pass in its current form then.
Although, the commencement date of the legislation is not officially known. According to its current form, it would come into effect from 1 July 2025.
This means, the earliest your super balance would be assessed is 30 June 2026. The good news is this gives you plenty of time to decide on the best course of action.
Because so much is up in the air, we recommend not acting until the law has passed and you can see its final form. If you act now, it may be impossible to reverse any pre-emptive action you take e.g. re-contributing funds that you’ve cashed out of superannuation.
Can withdrawing money help?
Yes and no.
If, after making withdrawals, your balance dips under $3 million at the 30th of June for the given financial year Division 296 does not apply. However, if, after making withdrawals, the balance remains above $3 million, the withdrawals will not impact the tax calculation because withdrawals are added back for the purpose of calculation.
In any case, before making a withdrawal consider the total tax implications as withdrawing the excess amount may not make financial sense for your situation anyway. A financial advisor can help model potential options for you so you can make the best choice.
Does this new tax take the place of the capital gains tax?
Some might think that Division 296 simply brings forward the eventual capital gains tax (CGT). However, this is not the case. CGT will still apply when you sell investments and realise a profit.
Isn’t this just a tax on the rich?
No. Due to the non-indexing nature of this tax as well as market growth, a person maximising the concessional contribution of $30,000 per annum (which is indexed) is likely to see their balance reach the $3 million cap and be affected by this tax sooner than you might think.
In other words, this tax is likely to impact most Australians over time.
How can exposure to Division 296 be minimised?
As we’ve said, it’s prudent not to take any action until the legislation has actually passed to avoid taking any unnecessary or irreversible action.
However, if Division 296 does come into effect, you will likely want to consider your options, including:
- Look at cashing out your superannuation: You may jump to cashing out your superannuation to ensure it stays under the $3 million threshold, however, before you do that consider the total impact. For example, consider the tax payable on holding the same investments in other entities. Remember that superannuation continues to be one of the most tax effective environments. In addition, there might also be other estate planning considerations which need to be factored into your decision.
- Use a discretionary family trust instead: A discretionary family trust allows you to distribute income to family members who may be on a lower tax bracket thus reducing the overall tax payable on the income generated by the same investments.
- Consider insurance bonds as an alternative: This is an investment product that was around well before superannuation came to prominence, and started gaining popularity when concessional contribution limits were reduced. Insurance bonds offer high income earners the opportunity to contribute and grow wealth in an environment where the tax rate is capped at 30%. While this rate may appear similar to the proposed new Division 296 tax, this tax is only payable on realised gains – unlike the new super tax which is also applied to unrealised gains. Additionally, there are no preservation rules to adhere to meaning you can access your money at any time.
How might you pay the Division 296 tax?
If the legislation does pass, here are some ideas on how you might pay the new tax:
- Personal funding: If possible, any tax liabilities would be best funded from your personal funds rather than selling (withdrawing) superannuation assets. This is because superannuation will continue to be (in most situations) a highly tax-effective tax structure.
- Superannuation funding: You are also able to pay this tax from your super. Keep in mind, in some instances, especially within self-managed super funds that hold illiquid assets like property, you may have limited cash reserves to fund pension obligations as well as this additional tax.
Given the complexity and differences in each individual’s portfolios, estate planning considerations and tax positions, speaking to a financial advisor or SMSF accountant is a prudent first step. They can model tax impacts and other considerations to help you make the right choice.
Is Division 296 fair?
Many financial experts and industry groups have raised concerns about the fairness and complexity of Division 296, particularly regarding:
- Paying tax on unrealised gains: The tax applies to both realised and unrealised gains, meaning individuals could be taxed on paper profits without actually selling assets and truly “gaining”. There is no tax credit or offset if the balance were to fall the following year.
- Impact on those with limited cashflow: Generally, people with superannuation balances in excess of $3 million hold property or other illiquid assets. This means they may have limited cash to pay this tax. Although some Australians may be able to pay this tax out of pocket, consider the farmer with seasonal earnings or small businesses that must now come up with this additional money.
- Impact on SMSFs: Some with a self-managed super fund may use the property held within the fund as their place of business making it unreasonable to even consider selling the property to pay the tax. Due to this illiquidity issue, SMSFs are likely to face the most challenges in handling Division 296.
- Impact on those under age 60: For people under the age of 60 who are under the preservation age and are unable to access their super they have no option but to pay this tax, and they have no opportunity to reduce their super balance either.
- Threshold indexation: There’s a common misconception that this is a tax on the rich affecting just a few Aussies. The reality is that the $3 million threshold is not indexed, meaning more and more individuals will be affected as super balances grow over time. For example, assuming 5% annual growth, a $2 million super balance today could exceed $3 million in fewer than 9 years, meaning Division 296 will affect more Australians over time.
Critics also argue that Division 296 disproportionately affects individuals who have structured their finances around superannuation. Some key concerns include:
- Double taxation: Super earnings are already taxed up to 15% and Division 296 adds another 15% tax — albeit to a portion of the growth.
- Unequal treatment: Individuals with similar total wealth but different income / investment structures may face different tax liabilities, leading to inconsistencies in how tax is applied.
- Retirement planning and estate planning challenges: Those nearing retirement may need to restructure their investments to manage the tax burden, potentially disrupting their long-term financial plans.
The bottom line
Don’t take any action until it’s clear whether the legislation has passed or not, and in what form. If it does pass, sit down with a financial advisor as soon as possible to discuss how best to structure your superannuation and any strategies you can implement to pay the additional tax.
Contact us
If you have any questions relating to Division 296, contact your usual BG Private advisor or contact our Financial Planning team on +61 3 9810 0700 or
