Few superannuation policy announcements in recent years have generated as much debate as the proposed Division 296 tax on high-balance superannuation accounts. Now, following extensive industry consultation, the Federal Government has unveiled significant revisions to the original proposal - addressing the most widely criticised elements while keeping the overarching goal of reducing tax concessions on balances above $3 million.
The Federal Government unveiled major revisions to the proposed superannuation Division 296 Superannuation (Better Targeted Superannuation Concessions) Imposition Bill following extensive consultation with industry stakeholders. The Government announced these changes aim to address concerns around fairness, liquidity, and complexity in the original design, while maintaining the policy's objective of reducing tax concessions on very large superannuation balances.
The 4 major updates include:
1. Only Actual Earnings Will Be Taxed
The proposed tax on unrealised gains has been scrapped and instead the additional tax will only be incurred on actual earnings received by individuals with a total superannuation balance (TSB) greater than $3 million. This maintains the current status quo of the Australian Taxation system which does not impose any taxes on unrealised gains.
What this means in practice: Under the revised design, Division 296 tax is only triggered when your fund actually earns income or realises gains on assets that sit within the portion of your balance above $3 million. You will not face a tax bill simply because the paper value of your investments has increased.
2. New Tiered Tax Structure Introduced
Previously the draft legislation would tax earnings for individuals with TSBs more than $3 million at 30%. Yesterday's changes revealed a second tax tier for individuals with a TSB above $10 million - earnings attributable to the proportion of the balance above this amount would be taxed at 40%.
| TSB Threshold | Tax Rate on Earnings (proportion above threshold) |
|---|---|
| Above $3 million | 30% |
| Above $10 million | 40% |
| Tax applies only to the proportion of earnings attributable to the balance above each threshold. | |
3. Indexation Introduced
Prior to the announcement, the proposed legislation did not allow for the $3 million TSB threshold to be indexed. This would have meant more Australians would have been affected by the proposed tax over time through bracket creep. However, both the $3 million and $10 million thresholds will now be indexed to CPI (in $150,000 increments for the $3 million threshold and $500,000 increments for the $10 million threshold).
Tip: Indexation is a significant win for the industry - it means the tax will not gradually capture a larger share of the population over time simply due to investment returns and inflation. The thresholds will keep pace with the cost of living in a structured, predictable way.
4. Start Date Deferred
These new rules commence from 1 July 2026, instead of 1 July 2025 as previously proposed. This will provide time for industry experts, financial planners and superannuation members to review these changes.
Action required now: Division 296 tax is now law and commences 1 July 2026. If your total superannuation balance is approaching or exceeds $3 million, the time to model the impact and review your strategy with a qualified SMSF specialist is now - not after 30 June.
Bonus: LISTO Increase for Low-Income Earners
A new surprise for low-income earners (now up to $45,000) was also revealed with the Low-Income Super Tax Offset (LISTO) being increased from $500 to $810 from 1 July 2027.
Who Is Affected?
Around 90,000 Australians have super balances above $3 million, and approximately 8,000 exceed $10 million. These changes aim to ensure a more sustainable and equitable superannuation system while providing additional time for members and funds to prepare.
Need to Review Your Division 296 Position?
At Altitude SMSF Accounting, we help high-balance trustees understand how Division 296 may affect their fund and model strategies to manage the impact. Contact us today to discuss your situation.
Further Reading
- ATO - Better Targeted Superannuation Concessions
- Treasury - Division 296 Legislation and Consultation
- Heffron - Division 296 News and Resources
This article has been prepared for general information purposes only and does not constitute financial, investment, legal or taxation advice. Altitude SMSF Accounting Pty Ltd does not hold an Australian Financial Services Licence (AFSL). Legislative requirements are subject to change - verify current information with the ATO or a qualified SMSF adviser before making any decisions.
This article was originally published on LinkedIn on 14 October 2025 and has been reformatted for publication here.