Pleasingly, the most controversial aspects of the Division 296 tax or $3 million super tax have now been updated, bringing greater clarity and relief for Australians with high super balances. The key changes cover the tax on unrealised capital gains, new thresholds, start date, and indexation.
These updates are especially relevant for anyone with a super balance around or above $3 million, as they can directly influence how you plan and manage your retirement savings. That said, the legislation is still being finalised, and further adjustments may be made before it comes into effect.
A Quick Refresher on the Division 296 Tax Before Updates
Division 296 is a proposed extra 15% tax on earnings linked to the portion of your Total Superannuation Balance (TSB) that exceeds $3 million across all your super accounts. This means that for individuals with very high super balances, earnings above this threshold would be subject to an additional layer of tax.
Key Changes to the Division 296 Tax You Should Know
1. No tax on unrealised capital gains
This is one of the most significant updates, the government has removed the tax on unrealised gains, which means you’ll no longer be taxed on paper profits before selling your investments. Under the revised rules, the Division 296 tax will now apply only to realised earnings, such as interest, dividends, rent, and realised capital gains. It takes away much of the complexity and avoids situations where investors might have to sell assets just to cover taxes on paper gains.
2. Two Tax Thresholds Introduced
Until now, Division 296 had only a single $3 million threshold. Under the latest government changes, a second threshold of $10 million has been introduced, with tax rates applied as follows:
- Balances between $3 million and $10 million will be taxed at 30% (the existing 15% rate + the additional 15% Division 296 tax).
- Balances of $10 million and above will be taxed at 40% (additional 25% div 296 tax).
3. Thresholds will be Indexed to CPI
One of the most criticised aspects of the original proposal was the lack of indexation for the $3 million threshold. Under the latest changes, both thresholds will now be indexed to inflation, ensuring that growth in super balances over time doesn’t inadvertently push you into higher tax brackets.
- The $3 million threshold will increase in $150,000 increments
- The $10 million threshold will increase in $500,000 increments
The government estimates that the $3 million threshold will affect around 90,000 super balances, while the $10 million threshold will apply to approximately 8,000 balances.
4. New Start Date
The $3 million super tax was originally proposed to take effect from the 2025–26 financial year, but it has now been pushed back to 1 July 2026. This gives you more time to understand the rules and plan ahead. The delay also allows for further amendments and consultation, which means the final legislation will be more targeted and clearer.
How You Should Plan Under the Div 296 Tax Changes?
With the recent updates to Division 296, it’s important to start considering how these changes may affect your super. Below are some practical steps to help you prepare and adapt your strategy accordingly:
- Review your current super balance
Start by understanding where your super currently sits relative to the new thresholds. If your balance is approaching $3 million or $10 million or is already greater, this will help you plan contributions and investment strategies more effectively.
- Plan the timing of realised earnings
Since the tax now only applies to realised gains, the timing of investment disposals matters. Strategically realising earnings could help you manage tax liabilities and take advantage of lower-tax periods.
- Review your contribution strategy
With the updated Division 296 rules, it’s a good time to review how much you’re contributing to your super each year. Contributions can significantly affect your tax position, especially as your balance approaches the $3 million or $10 million thresholds.
By carefully timing contributions, balancing concessional and non-concessional amounts, and staying within contribution caps, you can manage tax exposure and maximise super growth for retirement.
- Plan a withdrawal where appropriate
It’s worth reviewing whether your current super structure aligns with your long-term goals and tax strategy. For significant super balances affected by the new 40% tax rate over $10 million balances especially, you should consider how assets are allocated, when gains are realised, and whether some investments might be better held outside of super.
Diversifying through options like trusts, personal investments, or life insurance bonds can help spread your wealth and reduce exposure to Division 296.
However, it’s important to remember that this should be part of a broader financial strategy. Any changes should consider your full financial situation, retirement goals, and long-term plans before taking action.
- Seek expert advice and start early
With the start date now pushed to 1 July 2026, you still have time to plan, but don’t wait until the last minute. Getting advice early can help you understand what the changes mean for your situation, manage potential tax impacts, and ensure your super is structured to support your long-term retirement goals.
How Yield Advisors Can Help You?
At Yield, we specialise in working with high-net-worth individuals, business owners, and professionals to help them navigate complex financial situations and optimise their retirement planning.
With the recent Division 296 changes, we can assist by modelling the potential impact on your super, analysing expected growth and returns, and designing strategies tailored to your unique goals. Our approach ensures your super works efficiently within the updated tax rules while keeping your long-term objectives in focus.
If you want to feel confident about your future, feel free to reach out to book a consultation with a Yield Advisor.
