As the 2025-26 financial year begins, there’s growing noise around the proposed Division 296 superannuation tax—and for good reason. If you hold a high-balance super account or have clients who do, this is one change you can’t afford to ignore.

The proposal: a new 15% tax on the earnings associated with any part of your super balance above $3 million.

While the legislation hasn’t yet passed, the government is actively negotiating with the Greens to move it through Parliament—potentially without significant amendments. The proposed start date is 1 July 2025, with the first tax assessments expected in 2026. But the time to assess your exposure is now.

What Is Division 296?

It’s a new section of the Income Tax Assessment Act that imposes an additional 15% tax on the portion of “super earnings” that relate to the balance above $3 million.

It effectively lifts the tax rate on that slice of earnings from 15% to 30%.

Earnings include both realised and unrealised gains. That means you could owe tax on market growth, even if you haven’t sold the underlying asset.

How It Works

At the end of each financial year (30 June), your TSB is assessed. If it exceeds $3 million:

• A formula compares your closing and opening TSB (capped at $3m), with any growth above this being your “super earnings.”
• A portion of those earnings (based on what proportion of your TSB is above $3m) is taxed at 15%.

Example:

• Opening TSB (1 July): $3.2 million
• Closing TSB (30 June): $3.5 million
• Net growth: $300,000
• Portion above $3m: roughly 14.29%
• Taxable earnings: 14.29% x $300,000 = $42,870
• Division 296 tax: 15% of $42,870 = $6,430.50             

This is a simplified model. Actual calculations may vary, especially with pension payments, commutations, contributions, and reserve allocations.

Who Will Be Affected by Division 296?

You may be impacted if:

• Your individual Total Super Balance (TSB) is near or above $3 million.
• You’re holding a complying legacy pension and may soon commute it.
• You’ve received a large injection into super such as an insurance payout, remediation payment or death benefit pension.
• You’re in an APRA fund with significant growth-oriented or illiquid assets.

Important: Division 296 applies to individuals, not couples or families. Even if your household wealth is shared, this tax applies to each person separately.

The threshold is not indexed to inflation. So even if you’re under it today, natural portfolio growth could push you above the line sooner than you think.

What About Defined Benefit Pensions?

Defined Benefit (DB) pensions will be included in Division 296 calculations, but the valuation method is still unclear. The Government has indicated they won’t use the outdated 16× multiple. Instead, they may adopt a Family Law-style valuation approach—based on factors like indexation, age and life expectancy.

In short: an 80-year-old and a 65-year-old drawing the same DB pension could face very different tax outcomes.

What Should You Do Now?

1. Don’t Panic. But Do Plan.

Legislation isn’t final. Most professional advisers, including tax specialists, are recommending clients wait and see before making structural changes. This isn’t inaction—it’s informed strategy.

2. Review Your Balance and Projections

If your TSB is near or above $3 million:

• Run projections through to 30 June 2025 and 2026.
• Consider the impact of legacy pension commutations or expected growth.
• Ensure your asset valuations—especially property—are up to date with market conditions.

Tip: Understating values now could inflate future taxable earnings if growth is overestimated from a lower base.

3. Understand Contribution Timing

If your contributions in the 2025–26 year push you over $3 million:

• Pausing or delaying them may help in the short term.
• But often, continuing to contribute and claiming the upfront tax deduction is still more beneficial, even if Division 296 tax applies later.

Don’t stop contributing to super based on fear. Get modelling done first.

4. Assess Whether You Should Withdraw

If you’ve met a condition of release, you could:

• Withdraw amounts above $3 million.
• Reinvest them in a family trust, company, or insurance bond.

But this isn’t a free lunch. You’ll lose the concessional tax environment of super and may face:

• CGT on realisation
• Higher ongoing tax rates outside of super
• Reduced estate planning efficiency

Just because you can avoid the tax doesn’t mean it’s better overall. It depends on the full picture.

5. Explore Family Trusts with Corporate Beneficiaries

In some cases, investing outside of super in a family trust structure with a corporate beneficiary may offer tax flexibility. This option requires legal and accounting coordination and won’t suit everyone.

Final Thought: The Risk Is Real, But So Is the Opportunity

Division 296 will likely reshape super for high-balance members. But clarity, not urgency, is what matters most right now.

If your super balance is approaching (or above) $3 million:

• Book a review this financial year.
• Model your options, including staying the course, withdrawing, or restructuring.
• Wait for final legislation, then act decisively.

Talk to Lighthouse

We’re already working with clients impacted by Division 296 to prepare them for what’s next. If you’d like help understanding your exposure or options, get in touch.

Contact Us to schedule a confidential review.

Lighthouse Financial Group Pty Ltd, Authorised Representative 000287794 ABN 221 13 759 952 is a corporate authorised representative of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357 306. The information contained within this article does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances.