Understanding the Proposed Division 296 Tax and What It Means for Your SMSF

Introduction to Division 296 Tax

The Australian government is proposing a new tax, known as Division 296, targeting individuals with superannuation balances exceeding $3 million. If enacted, starting from 1 July 2025, this tax would impose an additional 15% on the earnings attributable to the portion of your super balance over $3 million. Importantly, this tax applies only to the proportion of earnings related to the excess amount, not your entire super balance. Moreover, if your super fund experiences a loss in a financial year, that loss can be carried forward to offset future Division 296 tax liabilities. Understanding these nuances is crucial, especially for those managing their own super funds. Let's delve deeper into what this means for you.

Current Status – Has Division 296 Been Passed Yet?

As of May 2025, Division 296 has not yet been enacted into law. While the proposal has passed the House of Representatives, it still requires approval from the Senate. The government's ability to pass this legislation hinges on securing support from the Greens, who hold a significant position in the Senate. The Greens have expressed a desire to lower the threshold from $3 million to $2 million (more on that later), which could broaden the tax's impact significantly. This ongoing negotiation means the final form of the legislation remains uncertain. This has been playing out in Parliament for over 3 years, so there is still a long way to go.

Should you still aim for a high super balance?

To us, this is a resounding, YES! Even with the proposed Division 296 tax, growing your super is still one of the smartest moves you can make for retirement.

Let’s be honest—the Age Pension doesn’t go far. As of March 2025, it pays about $29,874 a year for singles, and around $45,037 combined for couples. That’s enough to cover the basics, but not much more.

Your super, on the other hand, can give you real choice and control. And while the government is proposing a new 15% tax under Division 296, it only applies to a slice of your earnings—not your whole balance, and not even all your earnings.

Here’s how it works: if your total super balance is over $3 million, the tax only applies to the portion of earnings that are linked to the balance above that threshold. So, if only 20% of your balance is above $3 million, then only 20% of your earnings (not all of your earnings) are affected. And even then, it's taxed at 15%—still less than most personal tax rates, which can hit 45%.

So yes, a higher super balance still makes sense. It gives you more to live on, more security, and a lot more freedom in retirement.

Division 296 vs. Personal Marginal Tax Rates

So, let’s talk numbers. I know “taxes” probably doesn’t sound like the most exciting topic, but this bit really matters—especially if you’ve worked hard to build a decent-sized super balance.

Right now, earnings in your super are taxed at 15%. If your total super balance goes over $3 million, the government is proposing an extra 15% tax—but only on a portion of your earnings. It's not 30% on everything. Let's explore a quick example: Say your super balance is $4 million, and your fund earns $200,000 in a year. Your balance is over $3 million, so the extra tax is triggered. But how much do you pay?

Only the $1 million above the $3 million threshold is affected as a proportion of your total super balance - so only 25% of your total balance. Under Division 296 then only 25% of your earnings—or $50,000—are exposed to the additional 15% tax.

That means your Division 296 tax bill would be 15% of $50,000 = $7,500

So out of $200,000 in earnings, you’d pay an extra $7,500 in tax. That’s an effective increase of just 3.75% on your total earnings—not the full 15%, and definitely not 30%.

Now compare that to what you'd pay outside super. If you're earning over $180,000 a year, you’re in the 45% tax bracket (plus Medicare). Even those on more average incomes are paying 32.5% or 37%.. on every dollar.

So yes, this is more tax—but super still wins as a low-tax environment for long-term wealth building.

And let’s be clear—having $3 million or more in super doesn’t make you mega-rich. It means you've been consistent, forward-thinking, and possibly running your own SMSF with care. This new tax risks discouraging exactly the kind of behaviour our retirement system should reward.

Speaking Up: Why Your Voice Matters

Here’s the part almost nobody’s talking about—but we all should be.

This proposal to tax unrealised gains in super... It’s not just about super. It’s a test balloon. If the government can pull this off here, how long before they decide it’s OK to tax unrealised capital gains outside of super too?

That’s the real sleeper issue in this whole thing. Today it’s your SMSF. Tomorrow, it could be your investment property. Your family trust. Your shares. Your future.

That’s why it’s so important not just to understand Division 296—but to speak out about it. Write to your local MP. Let them know you’re paying attention. That you get what this change means—not just for you, but for investment, for retirement planning, and for fairness in our tax system.

And don’t think your voice doesn’t matter. MPs hate controversy in their electorates. The more noise people like you make, the harder it is for these changes to just slide through quietly. You just voted them in, it's a great time to be heard.

We need good retirement policy in Australia—but it has to be well thought out. And Division 296, especially the way it taxes gains you haven’t even realised yet, just doesn’t pass the common-sense test to us.

Conclusion: What It All Means for You and Your Super Future

Let’s wrap this up honestly—Division 296 is complicated, frustrating, and a little scary if you’ve built up a solid super balance through years of careful saving and smart investing - your feelings are valid. But here’s the truth: it’s not the end of the world.

Yes, the tax rate on earnings above $3 million might jump from 15% to 30%. And remembers this is on an Individual's balance, so if you're in an SMSF with another person, you get $3,000,000 each. If you have combined assets of $4,000,000, but you're on roughly 50% split, you won't reach the threshold. And yes, if the Greens get their way, that could even drop to $2 million per individual. But—and it’s a big but—30% is still better than anyone earning above $45,000 a year is paying outside of Super. And having that kind of balance in super still puts you in a great position for a secure, comfortable retirement.

What we really need to be cautious of is the shift toward taxing unrealised gains. That’s the real canary in the coal mine. If this becomes the new normal inside super, there’s nothing to stop it from leaking out into other parts of the economy. Imagine being taxed on the rising value of your home or any other assets—before you’ve sold anything.

So what can you do? Stay informed. Keep building your super wisely. And most importantly—make noise. Tell your MP, talk to your mates, write that email, post that comment. These decisions are being made by people who are counting on most of us not paying attention.

You’ve done the hard work to build your financial future. Don’t let a rushed, poorly designed tax undermine it.