Division 296 is a suggested new tax that imposes an additional 15% tax on earnings associated with an individual’s total superannuation balance (TSB) exceeding $3 million. It hasn’t been introduced yet, the potential implementation date is set to commence on 1 July 2025.
This measure is designed to limit tax concessions for individuals with very large superannuation savings and applies across all superannuation accounts, including SMSFs.
Key Features
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Who is affected?
Individuals whose total super balance exceeds $3 million. -
What is taxed?
The earnings on the portion of the TSB above $3 million, including unrealised gains. -
How is it calculated?
Based on the change in a member’s TSB from year to year, adjusted for withdrawals and contributions. -
How is the tax paid?
Individuals will receive a tax assessment and can choose to pay personally or release funds from their super. -
When does it start?
This new tax is suggested to start from the 2025–26 financial year, with the first notices expected in 2026. -
Concerns regarding this new Div 296 tax
Tax on unrealised profit, which is effectively a tax on inflation, is a major concern and not in line with normal tax principles. In addition, the $3m cap is also not indexed.
Recent Developments
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Unrealised gains included
One of the most controversial aspects is the inclusion of unrealised capital gains in the earnings calculation, meaning tax could be payable on asset value increases even if not sold.
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Asset valuation
The Institute of Public Accountants (IPA) has warned that Division 296 will lead to more rigorous asset valuations to comply with the new rules, especially for SMSFs holding illiquid assets like property or farmland.
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Defined Benefit Treatment Under Scrutiny
SMSF expert Aaron Dunn has raised concerns that the definition of ‘defined benefit interests’ needs clarification. These interests are harder to value, and current definitions may not align with how Division 296 intends to calculate earnings, potentially leading to inequities or unintended exemptions.
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Public and Political Debate
There is an ongoing public debate around fairness, particularly regarding whether some individuals, such as politicians with defined benefits, may be exempt from the tax. The government has emphasised that implementation details will be handled via regulation, but final clarity is still pending.
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May 2025 Update: Criticism of Division 296 Tax
The government is pushing to pass this legislation swiftly, with expectations that it will be introduced to Parliament shortly after the 22 July 2025 sitting resumes. With Greens party support, the bill is likely to pass the Senate. However, the Greens have proposed lowering the threshold from $3 million to $2 million to capture more high-balance super funds.
Critics argue that taxing unrealised gains could undermine confidence in the superannuation system and create unfair outcomes for members who haven’t sold their assets. Economists and industry professionals continue to call for a fairer and more sustainable alternative. Read more on SMSF Adviser.
Members with Balances under $3m
Members with Balances under $3m, at this point, are not affected by this suggested new tax.
For more information on taxation in SMSF’s see our main Tax page.
