A proposed change to Australia’s superannuation tax rules may introduce a new layer of complexity for individuals with larger balances. While it may appear to target only those with substantial superannuation balances, this proposed change is also highly relevant for individuals steadily building their retirement savings.
The Australian Government is proposing a significant reform to the way superannuation is taxed for individuals with balances exceeding $3 million. Known as Division 296, this measure introduces an additional 15% tax on a portion of growth above the threshold. While the legislation is not yet law, it is expected to pass in some form and may apply retrospectively from 1 July 2025.
Although the $3 million figure may seem high, the implications of this reform are broader than they first appear. Many Australians, particularly those with long-term super strategies, may find themselves affected in the future. This article outlines what’s proposed, who may be impacted, and how to plan ahead.
What Is Division 296?
Division 296 proposes an additional 15% tax on growth associated with the portion of an individual’s superannuation balance above $3 million. Unlike existing super taxes, this levy disregards whether you have realised and unrealised gains, meaning you could be taxed on increases in asset value even if those assets haven’t been sold.
The tax is calculated annually based on the change in your Total Superannuation Balance (TSB), adjusted for contributions and withdrawals. The proportion of earnings attributable to the balance over $3 million is then taxed at 15%.
Why This Matters – Even If You’re Not at $3 Million Yet
While not many people currently have super balances above $3 million, there are several scenarios where this could become relevant:
- Insurance in Super: If you pass away, your life insurance payout may be added to your super balance.
- Asset Appreciation: Property or investments held in super may increase significantly in value.
- Spouse Transfers: A deceased spouse’s super may be transferred to the surviving partner.
- Business Sale Proceeds: Selling a business and contributing the proceeds to super can elevate balances.
- Compounding Contributions: Starting early and contributing consistently can result in substantial growth over time.
Importantly, at this stage and noting that legislation has not been presented to Parliament, it is proposed the $3 million threshold is not indexed. As inflation and asset values rise, more Australians will likely be affected over time.
Key Concerns
Two aspects of the proposed tax have raised concern:
- Taxing Unrealised Gains: Individuals may be taxed on increases in asset value even if those assets haven’t been sold. If the market rises one year and falls the next, there is no refund – only a credit to offset future Division 296 tax liabilities.
- Non-Indexed Threshold: The $3 million cap will not rise with inflation, meaning more individuals will be affected over time as balances grow naturally.
Planning Strategies to Manage Potential Division 296 Exposure
From a financial planning perspective, Division 296 introduces complexity and potential unintended consequences. However, it also presents an opportunity to review and refine your superannuation strategy. Considerations could include the following:
- Contribution Management: Consider super splitting, catch-up contributions, and bring-forward strategies to manage balances between spouses.
- Asset Allocation: Review how volatile assets like some shares and property are held, as they may temporarily inflate balances and trigger tax.
- Insurance Review: Evaluate the level of insurance cover held within superannuation.
- Estate Planning: Review beneficiary nominations and wills. The Division 296 tax may affect how super is passed on. This may also prompt consideration of transferring wealth to children or other beneficiaries before death. You may wish to refer to our article: Raising Financially Capable Adults: Why Planning with Your Children Matters.
- Investment Structures: Assess how assets are held – whether in super, trusts, or companies – and consider restructuring where appropriate.
- Valuation Timing: For SMSFs holding unlisted assets, obtaining a formal valuation as of 30 June may be beneficial. However, withdrawing funds before this date could inadvertently increase taxable earnings the following year.
Super Guarantee Increase
| On 1 July 2025, the Super Guarantee (SG) increased from 11.5% to 12%. This change may affect salary sacrifice arrangements and contribution caps and should be considered as part of broader superannuation planning. |
Looking Ahead
Division 296 marks a significant shift in the taxation of superannuation. While the final details may evolve, the direction is clear. Now is the time to assess your position, model future scenarios, and implement strategies to protect your retirement savings.
Superannuation remains one of the most tax-effective vehicles for retirement savings. Even with the introduction of Division 296, the benefits of super may continue to outweigh the costs for many individuals.
What Should You Do?
If your super balance is approaching, or already exceeds the $3 million threshold, or if you’re simply planning for the future, now is the time to start thinking strategically. Understanding how your super is structured, how your assets are valued, and how your contributions are managed can make a meaningful difference.
At Stratus Financial Group, we believe in early, informed action. Whether you’re managing a high-balance super account or building your retirement savings for the future, our advisers can help you understand your exposure, explore tailored strategies using our modelling tools and plan carefully.
If you would like to understand how Division 296 may affect your superannuation, or explore strategies to manage your exposure, please contact Brett Cribb, Steve Nicholas, James Marshall or Debbie French on +61 (0)7 3007 2007, alternatively please email info@stratusfinancialgroup.com.au.
Stratus Financial Group helps professionals, executives, business owners, families and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions