Treasurer Jim Chalmers announced a significant overhaul of the government’s proposed Division 296 tax, the measure designed to reduce superannuation tax concessions for individuals with very large super balances. The changes mark a clear shift in policy direction – softening some of the most controversial features of the original proposal and introducing a more graduated, targeted structure.
Background – The Division 296 proposal
Division 296 was first introduced in 2023 as part of the government’s Better Targeted Superannuation Concessions policy. It aimed to apply an additional 15% tax on the earnings attributed to the portion of an individual’s total superannuation balance exceeding $3 million.
Under that design, earnings were to include both realised and unrealised gains, meaning super fund members could face additional tax on increases in asset values even if those assets were not sold. The inclusion of unrealised gains drew strong criticism from the superannuation industry, tax professionals, and investors, particularly for members holding illiquid assets such as property, private equity or unlisted investments.
While the government maintained that fewer than 0.5% of Australians would be affected, concerns grew over valuation complexities, liquidity risks, and the precedent such a tax might set.
The most recent announcement – A redesign of Division 296
In response to that feedback, the Treasurer has confirmed sweeping changes to the policy.
Most notably, the government has abandoned the plan to tax unrealised gains. Only realised earnings – such as interest, dividends, rent and realised capital gains – will now be captured under the additional tax. This change alone significantly reduces compliance complexity and removes the risk of taxpayers being forced to sell assets simply to fund a tax bill.
Beyond that, the government has introduced a two-tiered progressive framework that replaces the single flat rate previously proposed. Under the new structure:
- Superannuation earnings attributable to balances between $3 million and $10 million will be taxed at an effective rate of 30% (i.e., the existing 15% rate plus the additional 15% Division 296 charge).
- Earnings attributable to balances above $10 million will face a 40% rate.
Both thresholds will be indexed annually in line with the Consumer Price Index, addressing earlier concerns about bracket creep and ensuring that inflation does not gradually draw more members into the higher-tax net over time.
The CPI increase will be $150,000 for balances between $3 million and $10 million. The second threshold of $10 million will be indexed in $500,000 increments.
The implementation date has also been deferred from 1 July 2025 to 1 July 2026, providing additional time for Treasury to finalise the legislative detail and for super funds and advisers to prepare. Total Super balances will be captured at 30 June 2027 and this would make the first assessments expected in 2027-28 Financial Year.
What the changes mean for individuals with balances over $3m
The revised approach represents a more measured balance between fiscal sustainability and fairness. For high-net-worth individuals with substantial superannuation holdings, the removal of unrealised gains from the tax base is a major win. It eliminates the risk of liquidity strain and makes the system more predictable and administratively practical.
That said, the introduction of a 40% rate for very large balances above $10 million will materially increase the tax burden for those at the upper end of the spectrum. For clients with significant exposure within SMSFs, it may prompt renewed consideration of asset allocation, the timing of realisations, and whether some assets are best held within or outside the super environment.
The delay in commencement provides valuable breathing space to reassess long-term strategies. Trustees and advisers should use the coming year to model the likely impact of the new regime, taking into account potential growth in fund balances, expected returns, and liquidity requirements.
The road ahead
While the recent announcement provides much-needed clarity, the Division 296 legislation has not yet passed the Senate. We will need to wait for the finer details to understand how the redesigned tax will work.
Treasury has indicated that exposure drafts reflecting the redesign will be released in the coming months. In the meantime, high-balance super members and their advisers should continue to monitor developments closely and begin strategic discussions around long-term tax efficiency, diversification, and liquidity management.
Summary
The government’s decision to remove unrealised gains from the Division 296 framework represents a pragmatic and welcome adjustment. The move to a tiered, indexed structure provides greater fairness and predictability, albeit at the cost of higher marginal rates for ultra-high-balance members. We continue to wait and see.
