Australia’s Superannuation Division 296 draft legislation introduces major changes.
The Australian Treasury released draft legislation for the Division 296 tax shortly before the end of 2025. This new tax will apply to individuals with superannuation balances exceeding specific thresholds by introducing significant changes to how earnings on large superannuation balances are taxed.
What is Division 296 tax?
Division 296 tax is a new individual tax that will apply on top of existing superannuation legislation. The tax targets high-balance superannuation accounts, with thresholds set at $3 million and $10 million, both indexed to inflation.
The tax rates are structured as follows:
- Additional 15% tax on earnings from superannuation balances above $3 million
- Additional 10% tax (total of 25% including the lower tier) on earnings above $10 million
When combined with normal superannuation fund tax rates of up to 15%, the government refers to these as “headline rates” of 30% and 40% respectively for high-balance superannuation fund.
How is the tax calculated?
The Division 296 tax calculation uses a formula based on three components:
A percentage x earnings x the applicable tax rate
While this structure bears some similarity to earlier proposals, several important improvements have been incorporated into the final design.
One of the most significant changes is that the tax will only apply to realised capital gains, rather than including unrealised capital gains. These gains will be subject to usual discounting rules and carried forward capital losses can be offset against gains to reduce the taxable amount.
Capital gains relief for existing assets
The legislation includes a mechanism to exclude capital gains that accrued before 30 June 2026. This is achieved through a separate notional cost base equal to the market value at 30 June 2026, used exclusively for Division 296 tax purposes. Only realised gains above this adjusted cost base will be included in Division 296 calculations.
However, this relief is not automatic. Funds must opt in using an approved form, with the application due by the fund’s 2026/27 tax return lodgement date. Missing this deadline means losing access to the capital gains relief entirely, similar to what occurred with the 2017 capital gains tax relief when some funds missed out due to late lodgement or lack of understanding.
Any superannuation fund can opt in to this relief, even if no members currently exceed the $3 million threshold, provided the fund holds assets with accrued gains that may be realised in future years when members do exceed the threshold.
Large superannuation funds (those other than SMSFs and small APRA funds) will have different capital gains relief arrangements. Detailed mechanics for this approach will be outlined in forthcoming regulations.
Key provisions and requirements
The calculation of whether a member exceeds the $3 million or $10 million threshold uses the greater of their superannuation balance at the start and end of the financial year. This prevents members from realising gains and then withdrawing funds before year-end to avoid the tax.
A special transitional rule applies for the 2026/27 year, where only the balance on 30 June 2027 will be considered. This gives individuals until 30 June 2027 to reduce their superannuation balances if they wish to avoid the tax entirely.
Division 296 tax will be assessed on an individual basis, although can be paid from the superannuation fund.
Watch this space
Acclime is closely monitoring the process and your trusted advisor will keep you updated on the proposed legislation to assist with your tax affairs. Superannuation fund trustees should begin preparing for these changes by reviewing member balances, considering the capital gains relief opt-in requirements and any actions required in consultation with your Acclime advisor.
