Division 296 Tax: Will there be additional taxes on superannuation balances?

Prior to May 2025 Federal election, the Labor government of the 47^th Parliament had passed through the Lower House (House of Representatives) a proposed tax which introduced an additional 15% tax on a portion on individuals with superannuation balances over $3 million. This proposed tax was to be known as Division 296 tax. While it had passed the Lower House, it had not passed the Upper House (Senate).

Once the election was called, the Bill proposing the tax expired. This means the Bill will need to be re-introduced into both Houses for it to become law.

While at the time of writing there were still several Lower and Upper House seats to  be finalised, it appears likely the Labor Party will form government and with the help of the Greens, control the Senate.

Based on comments made by the Treasurer, the Hon Dr Jim Chalmers MP, it is the new Labor government’s intention to once again introduce this legislation into the 48^th Parliament. However, it is uncertain what, if any, changes will be made, including the start date. If the Greens support the passing of this legislation when the Upper House sits (likely to be August 2025), it is hard to see it not becoming law.

Despite this, it’s essential that SMSF trustees and advisers begin preparing for the implications now — especially as the regime introduces complexity, liquidity challenges, and significant changes to how superannuation growth is taxed.

Based on what was previously introduced, it’s important to note:

• The tax is levied on the individual — not on the super fund.
• It applies regardless of whether you have your savings in a retail, industry or self-managed super fund (SMSF).
• The ATO will assess your total superannuation position across all funds and issue a tax assessment directly to you.

The tax will take effect from 1 July 2025.

How Will Division 296 Be Calculated?

The ATO will calculate the tax using this formula:

Division 296 Tax = 15% × Earnings × (TSB – $3 million) / TSB

Where broadly:

• TSB = Total superannuation balance across all funds (including SMSFs)
• Earnings = Closing TSB (30 June) – Opening TSB (30 June prior) + withdrawals – contributions

Importantly, this includes unrealised gains — not just income or realised capital gains.

This approach means individuals may face a tax liability on paper gains — even if they haven’t disposed of the assets or received any cash benefit.

It’s important to note that any losses can be carried forward to offset future earnings, providing some relief in fluctuating market conditions.  However, there is no refund of Division 296 tax paid in previous years if your total super balance falls below the $3 million threshold.

Why This Matters for SMSFs

Taxing Unrealised Gains

This represents a major policy shift. SMSFs holding assets like direct property or shares may face tax bills on value increases that haven’t been realised or accessed.

Liquidity Concerns

Although this is a tax that will be levied on the individual, members may elect to have their Super Fund pay the tax liability on their behalf.  As a result, Funds may need to hold additional cash or liquid assets to fund these liabilities — a significant challenge for SMSFs with concentrated or illiquid portfolios.

Double Taxation Risk

Currently, the proposal provides no credit if the same asset is later sold and capital gains tax is paid. This risks taxing the same gain twice — once when unrealised, and again when sold.

No Indexation

The $3 million threshold is fixed — not indexed to inflation — meaning more members will fall into the regime over time, especially in periods of strong market growth.

What Should SMSF Trustees Be Doing Now?

For now, the key consideration is to hold off on implementing specific strategies until the legislation is finalised. However, there are proactive steps you can take in preparation:

Review Your Total Super Balance

Get clear on your combined balance across all super accounts. If approaching $3 million, begin assessing your exposure and the broader implications.

Assess Your Fund’s Liquidity

Understand your fund’s ability to meet potential future tax liabilities without needing to force the sale of assets if electing to pay the Division 296 tax from your superannuation fund — especially important for those holding property or private equity.

Model Hypothetical Scenarios with Your Adviser

Start discussions with your adviser to explore how Division 296 could impact your superannuation under different market conditions. Ask questions like:

• How would the tax apply if markets perform strongly and my balance grows significantly?
• What would the impact be if a large portion of that growth is in unrealised capital gains?
• If my balance exceeds $3 million, is it possible — or advisable — to remove the excess from the super environment?
• What are the tax consequences of doing so, and how should such a strategy be structured to align with long-term goals?

Watch the Legislative Landscape

The legislation is expected to be reintroduced, but its final form — and start date — is still uncertain. Staying informed and communicating with your advisers will allow you to act decisively when clarity arrives.

Communication with Advisers is Key

Early conversations with your SMSF specialist adviser, accountant, financial adviser and estate planner can help prepare you to make informed choices as rules evolve.

Plan Early: Structuring, Succession & Intergenerational Wealth

For members approaching or over age 60, this proposed tax presents a natural opportunity to revisit your structuring and succession planning strategies. Consider:

• Is your current structure the most tax-efficient going forward?
• Are there opportunities to begin intergenerational wealth transfers now under existing rules?
• Could rebalancing or partial withdrawals today achieve a better long-term tax outcome?

At this life stage, aligning your SMSF planning with retirement goals, estate intentions, and wealth transfer objectives becomes critical. With Division 296 adding new complexity, the case for early advice — and smart, forward-looking structuring — is stronger than ever.

The right steps today could result in significant long-term benefits for both your retirement and the legacy you leave behind.

Final Thoughts

While we await clarity on timing and legislative detail, the direction is clear: high-balance superannuation members — and especially SMSFs — will face increased scrutiny and complexity.

Our approach? Start with understanding. We’re monitoring the progress of the proposed Division 296 tax closely, so we can move quickly and confidently once legislation is in place.

If you’re an SMSF trustee with a high balance, this is the time to assess your position and prepare your fund. Reach out to your Vincents Adviser if you want to explore your options further.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.