Implications of the Division 296 tax for people who have over $3 million in super.
The government’s proposed Division 296 tax has stirred significant concern among high-net-worth individuals and trustees of self-managed super funds (SMSFs). If passed, this new law could fundamentally reshape how wealth is accumulated and taxed within the superannuation environment.
At Green Associates, we’ve been closely monitoring the development of this legislation. In this post, we’ll break down what Division 296 entails, provide examples of its potential impact, and share how we’re proactively reviewing alternative investment structures such as trusts and companies.
What Is Division 296?
Division 296 is a proposed tax measure that would impose an additional 15% tax on superannuation earnings for individuals with a total superannuation balance exceeding $3 million. This is on top of the existing 15% tax on concessional contributions and investment earnings.
This effectively brings the total tax rate on earnings above the threshold to 30%, potentially eroding the tax advantages that have historically made superannuation a cornerstone of long-term wealth accumulation.
How The New Super Tax Works
Let’s look at a simplified scenario to illustrate how the Division 296 tax will impact your super:
Example: Impact on Sarah's $4million balance
Sarah has a total super balance of $4 million at 30 June 2026. During the year, her super fund earns $200,000 in investment returns.
Only the $1 million over the $3 million threshold is subject to the additional 15% tax.
So, the portion of earnings subject to the Division 296 tax would be:
$200,000 √ó ($1 million √∑ $4 million) = $50,000
The additional tax payable would be:
$50,000 √ó 15% = $7,500
This tax is assessed to Sarah personally, but she may choose to pay it from her super fund, similar to the current Division 293 arrangements.
Sarah has a total super balance of $4 million at 30 June 2026. During the year, her super fund earns $200,000 in investment returns.
Only the $1 million over the $3 million threshold is subject to the additional 15% tax.
So, the portion of earnings subject to the Division 296 tax would be:
$200,000 √ó ($1 million √∑ $4 million) = $50,000
The additional tax payable would be:
$50,000 √ó 15% = $7,500
This tax is assessed to Sarah personally, but she may choose to pay it from her super fund, similar to the current Division 293 arrangements.
Key Considerations
Unrealised Gains Included: The tax is calculated on a notional earnings figure, which includes unrealised capital gains – meaning the tax liability could arise even if the underlying asset hasn’t been sold.
Indexed Threshold: As currently drafted, the $3 million threshold is not indexed, meaning more Australians may be caught over time due to inflation and asset growth.
Applicability: This tax applies to all super balances across all funds (including SMSFs, industry funds, and public offer funds), not just SMSFs.
Our Response: Strategies to mitigate the new super tax
While superannuation remains a tax-effective vehicle up to certain limits, the introduction of Division 296 is prompting many of our clients to diversify their wealth strategies outside the super environment.
Here’s how we’re helping clients explore more innovative investment structures:
- Family Trusts
Family (or discretionary) trusts can be an excellent structure for:
- Income splitting across beneficiaries (e.g., adult children on lower marginal tax rates)
- Asset protection
- Flexibility in distributions
- Potential to stream different types of income (e.g. capital gains vs franked dividends)
Example: Jason and Stacey (our long-term clients and experienced renovators) are planning to sell their current property and invest $500,000 into a new project. Rather than buying it through their SMSF and facing Division 296 implications down the line, they are considering purchasing the property through a family trust. This enables them to manage earnings more flexibly while preserving long-term estate planning goals.
- Private Investment Companies
Another alternative is establishing a private investment company, which:
- Offers a flat tax rate of 30% on income (or 25% if classified as a base rate entity)
- Retains earnings for reinvestment
- Can be used to build up working capital or fund future business or investment projects
Companies can work well when the intention is to grow a pool of capital over time without needing to distribute income annually, as required in a trust.
How We're Advising Clients
We’re currently reviewing SMSF strategies for clients whose balances are approaching or exceeding the $3 million mark. This includes:
- Asset revaluation strategies
- Reviewing investment strategies and the impact of holding lower growth assets inside superannuation.
- Considering partial rollovers or asset sales
- Evaluating the use of family trusts and corporate entities as alternative vehicles
We are also encouraging clients to review their estate planning documents, as this new tax may have implications for death benefit planning and transfer of wealth to the next generation.
We’re currently reviewing SMSF strategies for clients whose balances are approaching or exceeding the $3 million mark. This includes:
- Asset revaluation strategies
- Reviewing investment strategies and the impact of holding lower growth assets inside superannuation.
- Considering partial rollovers or asset sales
- Evaluating the use of family trusts and corporate entities as alternative vehicles
We are also encouraging clients to review their estate planning documents, as this new tax may have implications for death benefit planning and transfer of wealth to the next generation.
While Division 296 is not yet law, it is well advanced and has strong political support. Even if the final version is amended, the clear trend is that the government is targeting large super balances for additional tax revenue.
At Green Associates, we are staying ahead of the curve and helping our clients build flexible, tax-aware strategies that can stand the test of time. If you’re concerned about how these changes may affect your retirement plans or your investment structures, now is the time to start the conversation.
