Where Are We With Division 296 Superannuation Tax Reform?
Division 296 is the proposed legislative measure designed to reduce or limit the generous tax concessions which exist for individuals with large superannuation guarantee fund balances.
Initially announced in 2023, this reform was to introduce an additional tax (15%) on earnings (including unrealized capital gains) from super funds where balances exceed $3 million. The reform is part of the Government’s broader Better Targeted Superannuation Concessions (BTSC) policy.
Treasurer Jim Chalmers has recently provided an update on the proposed legislation, following consultation and feedback. He has described this reform as “difficult tax reform… but we’ve worked to make it fairer and more sustainable,” acknowledging the pushback from industry and voters on the initial drafting of the legislation.
The October 2025 announcement is widely seen as being positive for many impacted individuals when compared to the original announcements, however those taxpayers with large superannuation balances will need to continue to work on planning what will be the most effective structure to hold their wealth going forward.
Treasury has also released a fact sheet, which contains examples of the calculation methodology in the application of Division 296, https://treasury.gov.au/publication/p2025-709385-btsc.
We look forward to the release of the updated legislation in early 2026.
Key Updates to Division 296 Superannuation Tax Reform (October 2025)
Start Date:
Deferred to start 1 July 2026, allowing more time for legislative finalisation and stakeholder engagement. If legislated as anticipated, the proposed changes will take effect from 1 July 2026 – meaning the first tax assessments will be issued in the 2027-28 financial year, with the first time the Total Superannuation Balance is to be measured being 30 June 2027.
Tax Rates:
Updated to include a new higher rate above $3m.
| Superannuation Balance | Additional Tax Rate | Effective Tax Rate | Notes |
|---|---|---|---|
| $0–$3 million | 0% | 15% | No change |
| $3–$10 million | 15% | 30% | Applies to realised earnings only |
| Over $10 million | 25% | 40% | Indexed with inflation |
Indexed Thresholds:
Both of the proposed thresholds will now rise with inflation, aligned with the Transfer Balance Cap, to prevent ‘bracket creep’ overtime as noted in the consultation process as a key risk going forward for ordinary superfund holders.
Realised Earnings Only:
The Government has proposed to now remove the controversial proposal of taxing unrealised gains. Tax will now apply only to realised earnings such as interest, dividends, rent, and/or capital gains.
Defined Benefit Funds:
Will receive parity treatment, with Treasury currently consulting on assessment methods and exemptions.
Implications for Taxpayers
Who’s Affected by this change?
- Approximately 90,000 Australian taxpayers have superannuation fund balances in excess of $3 million.
- Approximately 8,000 Australian taxpayers have superannuation fund balances exceeding $10 million.
Estate Planning & SMSFs:
- The reform alters the dynamics of using superannuation funds for intergenerational wealth transfer. SMSF trustees must also now consider liquidity and timing of asset sales to manage these potential additional tax exposures.
Mitigation Strategies:
Taxpayers should engage with their tax advisors and financial planners to understand the impact of the reforms on them and how best to navigate these changes as they become law.
This may include taxpayers considering:
- Use of investment different investment options with different tax consequences.
- Use of family trusts.
- Superannuation guarantee recycle strategies (e.g., gifting and recontributing).
- Philanthropy & tax deductions.
Conclusion
Division 296 changes represent a significant shift in Australia’s superannuation guarantee tax landscape. While the updates to the proposed change now reflects a more balanced and practical approach, high-balance super holders and their advisers must prepare for its implementation in July 2026.
Whilst any definitive actions should wait until the legislation is released, taxpayers should take this time to consider if they are impacted by Division 296, and if so, what actions should be considered. Strategic planning, consideration of likely earnings in superannuation funds, and awareness of indexed thresholds will be critical. It may be timely for a review of your overall structure and goals (including different entity options, your age and phase of life, overall assets, etc.) and to seek formal advice from both tax advisers and financial planners.
Andersen Australia is well positioned to support clients in navigating these changes and ensuring appropriate consideration is given to these continuing tax developments.
