Update: Government Retreats on Superannuation “Div 296” Tax Proposal
- Josh Tilley
- Nov 26
- 2 min read
Two years ago, Treasurer Jim Chalmers released what quickly became one of the most contentious superannuation proposals in recent memory: a new tax on members with super balances above $3 million.
The major concern was the mechanism. The original proposal sought to tax unrealised gains, meaning individuals could have been taxed on increases in asset values that had not been sold and may never be realised. Compounding this issue, the $3 million threshold was not indexed, ensuring that ordinary inflation would gradually push more Australians into the regime over time.
The outcry was intense. Critics argued that taxing unrealised gains would set an extremely dangerous precedent and represented a fundamental departure from long-standing Australian tax principles. Opposition came from across the political spectrum, including notable Labor figures such as Paul Keating and Bill Kelty. Political pressure continued to escalate until it reached the Prime Minister.
Key Changes Announced
This pressure has resulted in a significant retreat. On Monday, the Treasurer confirmed that the draft legislation will be amended so that:
Only realised earnings will be taxed. This includes income actually received by the fund, such as interest, dividends, rental income, and capital gains from sold assets. Unrealised gains will no longer form part of the tax calculation.
The tax will apply to members with balances above $3 million, with the Australian Taxation Office determining each individual’s share of their fund’s realised earnings.
A 15 per cent rate will apply to balances between $3 million and $10 million, and 25 per cent will apply to balances above $10 million.
Both thresholds will be indexed to the CPI, addressing concerns that the original $3 million cap would capture more taxpayers simply through inflation.
These rates apply in addition to the standard 15 per cent tax on super fund earnings.
Contrary to many headlines, this is not a 30 or 40 per cent tax on the entire fund. For example, a member with a $4 million balance would have only one quarter of the fund subject to the additional rate, and only the earnings on that portion taxed at 25 per cent.
What This Means for You
If your superannuation balance is below $3 million, these changes will not affect you.
If your balance is above $3 million, or likely to approach this level, you should seek advice before 30 June 2026, when the new regime commences.
For self-managed superannuation funds, it may be advantageous to consider realising certain assets in the current financial year to take advantage of existing, lower capital gains tax settings.
As always, proactive planning remains the most effective strategy. If you would like to discuss how these changes may affect your retirement planning, estate planning, or SMSF strategy, please contact our office.
