Division 296 Update
The Federal Government announced updates to the proposed Division 296 superannuation tax on the 14th of October. These refinements make the measure fairer and more targeted.
Here’s a short summary:
When it starts
Proposed to commence from 1 July 2026 – delayed by 12 months from the original 2025 start date. The changes are not yet law. A revised bill will be re-introduced to Parliament, with further consultation to come — particularly for defined-benefit schemes.
Who it applies to
Australians with Total Super Balances above $3 million on 30 June each year (with the first capture date 30th June 2027).
What’s changing
Only realised earnings will be taxed — interest, dividends and capital gains when sold. Unrealised (paper) gains will no longer be taxed.
The $3 million threshold will be indexed to inflation to avoid bracket creep.
New tiered rates introduced:
– 15% on the portion of earnings linked to balances between $3m and $10m
– 25% above $10m
Definition: Realised Earnings
‘Realised earnings’ are the parts of your super funds’ return that have been received or locked in — not just increases on paper.
These could include:
Interest-income from cash, term deposits or bonds
Dividends and distributions from shares or managed funds
Rental income from property
Capital gains only when an asset is sold and the profit is crystallised
These exclude:
Unrealised (paper) gains — for example, if your fund’s shares or property have gone up in value but haven’t been sold yet
Revaluations of assets that haven’t been converted into cash
In short:
Income received + realised capital gains = realised earnings
Growth that’s still on paper = unrealised and therefore not taxed under Division 296.
How would it work?
Because it’s complex, below are two worked examples of how Division 296 tax will be calculated. Please note that this isn’t legislated yet, and this is only our interpretation of the proposed arrangement. More information will follow for affected clients, once there’s further clarity.
Key takeaways
Division 296 applies once total super balances exceed $3 million, across all funds and phases (Super / Accumulation or Pension).
The tax is on realised earnings, proportionate to the share of your balance above $3 million.
It is separate from the 15 % fund tax and can apply even when part of the balance is in the tax-free pension phase.
The ATO calculates it across all accounts and providers and issues an individual assessment each year.
The Fund tax is paid within the fund (as is currently being done) while Div 296 will be assessed to the individual and can then be paid as withdrawal from the fund, or personally.
What to do now
We see these changes as a very positive outcome, considering the previous Div 296 proposals, but it does add a layer of complexity to an already complex Superannuation world. Only a small number of Australians are affected, and for those that are, there are some planning opportunities that can be considered.
For those with balances near or above $3 million, speak to your financial planner to review your strategy, liquidity and structure ahead of the 2026–27 financial year. There is no need for immediate action until the final law is passed.
Other Changes
The government also announced that the Low-Income Super Tax Offset (LISTO) will be increased to $810 (up from $500 currently) and the upper income limit increased from $37,000 to $45,000. Once approved, this will take effect from 1 July 2027 (so for the 2028 financial year onward). The LISTO is a tax offset (rebate) paid into your super account, intended to reduce the net tax on concessional (before-tax) super contributions for low-income earners.