What You Need to Know About the Proposed Division 296 Superannuation Tax Changes
The Australian Government has proposed significant changes to how superannuation earnings are taxed for individuals with substantial retirement savings. Known as Division 296, this measure is set to impose an additional 15% tax on earnings related to the portion of a person’s total superannuation balance (TSB) that exceeds $3 million. While legislation is still pending, the likelihood of implementation means now is the time to understand your position and begin preparing, particularly with the guidance of an experienced estate planning lawyer.
Why This Matters
For individuals with large super balances, particularly those managing their own funds through a Self-Managed Superannuation Fund (SMSF), the proposed changes could substantially affect future tax outcomes and wealth planning strategies. It’s essential to consider how these reforms may influence not just retirement savings, but also succession planning and estate distribution.
Early planning, ideally ahead of the anticipated start date of 1 July 2025, may reduce the risk of unwanted tax consequences. The first assessment year is expected to be the 2025–26 financial year, giving affected individuals a limited window to consider proactive steps.
Key Features of Division 296
Here’s a simplified breakdown of what’s proposed:
- Tax Applies to Unrealised Gains
Unlike traditional capital gains tax, Division 296 may apply to unrealised investment gains, that is, paper profits that have not actually been converted into cash. This could lead to individuals paying tax on asset values that may later fall, raising equity and liquidity concerns.
- No Backdated Refunds for Losses
If your super balance later dips below $3 million, you won’t receive a refund of previously paid Division 296 tax. Instead, any negative earnings will carry forward to offset future Division 296 liabilities, although there’s no guarantee these losses will be fully utilised.
- How the Tax is Calculated
The calculation process involves:
- Assessing earnings based on your super balance change (adjusted for contributions and withdrawals),
- Identifying the proportion of earnings above the $3 million threshold,
- Applying a 15% tax rate on that portion.
This is assessed annually and applies to the individual, not the super fund.
- Tax Payment Options
Although calculated at the individual level, taxpayers will have the choice to either:
- Pay the tax out of their own funds, or
- Request that the tax be released from their superannuation account.
This added flexibility may help with liquidity management, especially where assets are illiquid or investment-heavy.
Timing is Everything
While it may be tempting to act immediately—by selling down investments or withdrawing funds—doing so before the legislation is finalised could backfire. For instance:
- Selling assets early might result in capital gains tax without necessarily reducing your Division 296 liability.
- Withdrawing super prematurely could limit your ability to re-contribute, particularly if the proposed laws don’t pass as currently drafted.
Instead, this is the time to assess your total superannuation position, model potential scenarios, and consider whether any changes to your investment strategy, contribution plans, or estate planning structures are warranted.
Reassessing Superannuation as a Tax-Effective Strategy
Despite the introduction of an additional tax under Division 296, superannuation may still represent one of the most tax-efficient structures for retirement savings. However, individuals approaching or exceeding the $3 million threshold should take this opportunity to review their investment strategies and consider whether diversifying into other vehicles—such as family trusts or non-super investments—could help balance tax exposure and long-term goals.
Every situation is unique, so this type of review is best conducted with expert guidance.
Talk to an Estate Planning Lawyer About Your Superannuation Strategy
Division 296 could have long-term implications not only for your superannuation but also for your broader estate and retirement planning. Whether you’re managing an SMSF or simply seeking clarity about how the proposed changes could affect your legacy and wealth distribution, speaking with a qualified estate planning lawyer is a smart move.
At our firm, our team of will and estates lawyers in Melbourne can provide tailored advice to help you prepare for what’s ahead. From assessing your exposure to Division 296 to reviewing your estate plan in light of these proposed changes, we’re here to guide you every step of the way.
Reach out today to speak with one of our experienced estate planning lawyers and make informed decisions for your future.
