Division 296 – Revised Super Tax Proposal

The Australian Government has announced the proposed changes to Division 296

The Australian Government’s revised Division 296 proposal, announced by Treasurer Jim Chalmers on 13 October 2025, marks a significant shift in the taxation landscape for high-balance superannuation holders. While the legislation is still pending, the updated framework offers a more balanced approach compared to the original plan and requires strategic considerations for those with substantial superannuation savings of over $10m. Although these changes have been announced and agreed upon in principle, they are not expected to be passed until early 2026, with draft legislation and further consultation anticipated in the coming months. The original implementation date was set for 1 July 2025, but this has now been revised to 1 July 2026.

These are the three most notable changes—and what they mean for affected individuals:

One of the most controversial aspects of the original proposal was the inclusion of unrealised gains in the tax calculation. This would have meant paying tax on increases in asset value even if the asset hadn’t been sold—posing liquidity risks and potential forced asset sales. The revised proposal removes this feature, ensuring that only realised income (such as dividends, interest, and capital gains) is subject to the new tax.

The original plan set fixed thresholds at $3 million and $10 million, which risked bracket creep over time due to inflation. The revised proposal introduces indexation for both limits, ensuring that more Australians aren’t unintentionally swept into higher tax brackets simply due to inflation.

Perhaps the most impactful change is the introduction of a new two-tier tax structure. Under this system, earnings attributable to super balances between $3 million and $10 million will be taxed at an effective rate of 30% (inclusive of the existing 15% fund tax), while earnings on the portion of balances exceeding $10 million will be taxed at 40%. Importantly, the higher 40% rate applies only to the portion above $10 million, not the entire balance.

This top-up tax is applied at the individual level, in addition to the standard 15% fund tax in accumulation phase. While not a complete deal-breaker, the 40% rate creates a strong incentive for high-net-worth individuals to consider withdrawing funds from super and exploring alternative investment structures. Given the differential between marginal personal tax rates and corporate tax rates, strategic planning becomes essential to optimise outcomes under the new regime.

Beyond the technical details, the revised Division 296 proposal could signal a broader philosophical shift in how superannuation is viewed. Historically, super has been seen by many as a tax-effective vehicle for wealth accumulation and intergenerational transfer. The new framework repositions it more clearly as a capped retirement savings system, with reduced concessions for very large balances.

This change will likely prompt a reassessment of long-term, high-balance wealth strategies. Diversification, family trusts, investment bonds, and philanthropic giving may all play a greater role in future planning.

To receive tailored advice on your super situation or if you would like to discuss the implications of the Division 296 proposal, please reach out to Accru Felsers.

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