On 13 October 2025, Treasurer Jim Chalmers provided a long-awaited announcement regarding the status of the proposed Division 296 tax on superannuation balances exceeding $3 million, confirming it would proceed effective 1 July 2026 but with some significant changes to the methodology and thresholds – such as the exclusion of unrealised capital gains from the tax. While the revised proposal is arguably more positive for most individuals than the previously announced versions, this change in approach means many people with large or growing superannuation balances will need to take yet another turn on the road to planning the most suitable structures in which to hold their wealth.
What is the proposed Division 296 tax and how has it changed?
The original draft Division 296 tax legislation was proposed to commence 1 July 2025, imposing an additional 15% tax on the proportion of ‘earnings’ on superannuation balances over $3 million. The ‘earnings’ definition was a deemed calculation that captured most types of earnings, including unrealised capital gains – causing much angst for impacted superannuation fund members. It was also proposed that the $3 million threshold would not be indexed.
The 13 October changes announced by the Treasurer make the following four major adjustments to the proposed measures:
- Defer the start date of the measures to 1 July 2026.
- Redefine what is to be included as ‘earnings’ for the purpose of the new tax, limiting it to realised earnings based on taxable income from 1 July 2026 – that is, removing unrealised gains from the calculation.
- In addition to the $3 million threshold for Division 296, introduce an even higher Division 296 tax rate for those individuals with balances above $10 million:
- Index the $3 million and $10 million thresholds in accordance with CPI, increasing the relevant thresholds in $150,000 and $500,000 increments, respectively.
The Government have released a brief fact sheet broadly outlining how the revamped Division 296 tax will operate. However, updated draft legislation is not expected to be introduced until 2026 and will be subject to public consultation before it is implemented.
How will the Division 296 tax be calculated?
Similar to the original proposal, the Division 296 tax will be calculated on the proportion of earnings relating to an individual’s Total Superannuation Balance exceeding the relevant threshold. An individual’s Total Superannuation Balance is the combined value of their member balances across all their superannuation funds.
The table below sets out the formula that would apply under the revised proposal to calculate the Division 296 tax for a member, depending on the size of their Total Superannuation Balance.
| Tier | Total Superannuation Balance | Standard tax rate* on all earnings (A) | Division 296 tax rate on proportion of earnings (B) | Total effective tax rate* on earnings (A + B) |
|---|---|---|---|---|
| Tier 0 | Less than $3M | 15% | Nil (Division 296 won’t apply) | 15% |
| Tier 1 | $3M to $10M | 15% | 15% on the proportion of earnings relating to the balance above $3M | 15% on the earnings from the proportion relating to the first $3M of member balance
+ 30% on the proportion of earnings relating to the balance above $3M |
| Tier 2 | Over $10M | 15% | 15% on the proportion of earnings relating to the balance between $3M to $10M
+ 25% on the proportion of earnings relating to the balance above $10M |
15% on the earnings from the proportion relating to the first $3M of member balance
+ 30% on the proportion of earnings relating to the balance between $3M to $10M + 40% on the proportion of earnings relating to the balance above $10M |
*Note: if an individual is in Retirement Phase (pension phase), the standard concessional tax rate on superannuation earnings should be nil for some or all of the earnings, meaning the standard tax rate on all earnings is likely to be between nil to 15%, rather than merely 15%, depending on personal circumstances.
The earnings will be based on the individual’s portion of a superannuation fund’s taxable income, with certain adjustments such as for contributions and pension withdrawals. While the actual calculation of earnings will be defined following stakeholder consultation, the current proposal will require changes to the way realised earnings are reported to the ATO per individual member.
As set out in the table above, the Division 296 tax is calculated as an additional amount on the proportion of earnings that exceed the relevant tier. This means that an individual who is in Retirement Phase with a large superannuation balance may be subject to a lower average total tax rate than 40% given parts of their earnings will be taxed at the lower rates.
The following examples, adapted from the Treasury’s fact sheet, explain how the calculation operates:
Example 1
- Megan is 58 and has a Total Superannuation Balance of $4.5 million on 30 June 2027.
- In the 2026-27 financial year, Megan had $500,000 in realised earnings in her superannuation fund.
- The proportion of her $4.5 million balance above the $3 million threshold is 33.33%. The proportion above $10 million is nil.
- Megan’s Division 296 tax liability is therefore $25,000 (being 15% x 33.33% x $500,000).
Example 2
- Emma is 55 and has a Total Superannuation Balance of $12.9 million on 30 June 2027.
- In the 2026-27 financial year, Emma had $840,000 in realised earnings in her superannuation fund.
- The proportion of her balance above the $3 million threshold is 76.74% and the proportion of her balance above the $10 million threshold is 22.48%.
- Emma’s Division 296 tax liability is therefore $115,581 (being [15% x 76.74% x $840,000] + [an extra 10% x 22.48% x $840,000]).
When will Division 296 apply?
If legislated, the proposed changes are to take effect from 1 July 2026 – meaning the first tax assessments will not be issued until the 2027-28 financial year. The first time the Total Superannuation Balance is measured for this tax will be 30 June 2027.
What do you need to do now?
With limited commentary from the Treasurer and a brief Treasury Fact Sheet at this time, it is prudent for impacted individuals to await legislation before taking definitive actions. However, for most individuals, considering whether they are likely to be impacted by the proposed Division 296 (and if so, by how much) is something they should action now.
If you may be subject to Division 296, it is important to consider several aspects regarding your superannuation and retirement strategy – taking into account your personal circumstances, investment horizon and broader financial goals:
- Pre-30 June 2026 actions: With Division 296 proposed to apply to realised earnings from 1 July 2026, it will be important to consider the nature and timing of when earnings are derived and when gains on particular assets are made. Depending on the details in the actual legislation, it may be more tax advantageous to sell certain assets before the Division 296 measures kick in on 1 July 2026, compared to after the changes apply. While it may be too early to act now until we get more clarity on what the actual legislation will say, be prepared to act swiftly.
- Review your overall structure: With the proposed introduction of a higher 40% tax rate for very significant superannuation member balances and a 30% rate for those with balances above $3 million, it is crucial that you have the right structures in place for holding your wealth. Now’s the time to review and seek advice on your overall investment structures and to consider which investments are most tax-effective within different entities such as superannuation, companies or discretionary family trusts. These alternative structures may offer greater flexibility in managing tax outcomes and distributing wealth.
- Age considerations: The impact of Division 296 can differ significantly based on your age and proximity to retirement:
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- Estate planning implications:It’s important to understand how any changes you make in response to any tax or legislative updates could impact your estate and succession plans. Regular review and monitoring are key to ensuring your arrangements remain aligned with your estate planning objectives.
- Asset protection: While you may maximise tax effectiveness using particular structures, it’s important to balance this with protecting assets (whether in superannuation or alternative entities).
- Valuation requirements: The evidence supporting superannuation asset valuations are likely to come under increased scrutiny for the financial year ending 30 June 2027 onwards, should this tax be introduced, particularly for self-managed superannuation fund (SMSF) trustees. Although the proposed Division 296 tax doesn’t apply to unrealised gains, the member’s Total Superannuation Balance remains impacted by the total value of your assets (that is, it would include unrealised gains or losses on your assets). Consider the administrative implications and potential costs associated with obtaining suitable valuation evidence to meet these ongoing requirements, weighing them against the benefits of the investment choices.
- Asset types: Is it optimal to house certain types of assets within superannuation or could alternative structures be more effective? Any review must be holistic, weighing not just superannuation or tax but also your broader financial circumstances. The nature of your assets and level of liquidity within superannuation requires careful planning. Holding illiquid or ‘lumpy’ assets could pose challenges if this tax is introduced as proposed.
The announced changes to the proposed Division 296 were introduced together with proposed increases to the Low Income Superannuation Tax Offset (LISTO) and LISTO eligibility thresholds. These also follow legislation which is currently before Parliament to voluntarily allow the splitting of an individual’s superannuation balance to top-up their spouse’s balance. These three superannuation measures together present an opportune time for individuals to reconsider how their superannuation holdings fit in with their overall tax and retirement planning to ensure it is fit for the future.
To read more about our commentary for previous iterations of the bill, read our articles here and here.
To discuss how the proposed changes may impact you, contact your local William Buck advisor.
