Super and Division 296 Tax –
Don’t Throw the Baby Out with the Bathwater

With the Labor Party re-elected, Treasurer Jim Chalmers remains adamant that he will proceed with Division 296, the new tax measure targeting larger super balances. The recent budget included revenue expected to be generated from Division 296 tax starting in the 2026–27 financial year.

Therefore, it has become a waiting game to see what the final legislation will look like, and that means there are plenty of questions still up in the air.

Key Questions on Everyone’s Mind:

1. Will the legislation pass through Parliament in its current form or be modified?
   • No indexation is currently proposed.
   • The tax applies to members with a total superannuation balance over $3 million.
   • Negative losses are quarantined and carried forward to be applied to any future unrealised capital gains – they won’t be refunded.
   • The tax is on unrealised capital gains.

1. Will the Greens push for changes in the Senate?
   • The Greens want the threshold lowered to $2M.
   • They have expressed their desire to see the removal of limited recourse borrowing arrangements (LRBA).

1. When will it start? There have been two schools of thought on this.
   • Labor has been discussing taxing unrealised capital gains for almost two years, so 1 July 2025 is still seen as the likely start date – even if the law isn’t passed by then. Regardless, it is your balance at 30 June 2026 which is pertinent.
   • The other school of thought considers that the software providers will not be ready in time to provide the data to the ATO. Additionally, if there are any modifications to the final legislation, people should be given time to take action.

A Quick Refresher: How Will the Proposed Division 296 Tax Work?

• The tax applies to individuals (not at a fund level) whose total super balances exceed $3 million, across all their super balances.
• It is a percentage proportion of your balance above $3 million applied to your adjusted superannuation earnings.
• Your adjusted superannuation earnings are calculated as the difference between your balance from 30 June 2026 and 30 June 2027 (add and deduct certain items).
• Taxed at 15%.
• If your adjusted superannuation earnings are zero or negative, no tax applies.
• Only unrealised gains will be assessed.
• It’s a tax levied by the ATO and doesn’t form part of your personal tax return. Like Division 293 tax, you can request the tax be released from your super fund – but if the fund doesn’t have the cash, you may need to sell assets within the fund or pay with monies from outside super.

READ MORE: Step-by-step Calculations

This is separate to tax on realised capital gains/loss that may occur from selling investments during the year, which is reported in your annual super fund tax return.

What You Can Do Now

While we wait for the final legislation, here are a few things worth considering:

• Balancing strategies
  If one member has a large balance (e.g. Mum with $3.2 million) and the other has a smaller one (e.g. Dad with $1.1 million), consider possible recontribution strategies to even things out and keep both members under $3 million. There are eligibility criteria, so please contact us to see if this is available to you.

• Tweak income stream allocations
  If you’re drawing more than the minimum income stream, consider allocating the excess to the accumulation balance of the member with the higher total super balance.

• Reconsider certain investments inside super
  Where possible put off acquiring:
  • Lumpy assets such as property inside super
  • Investments that are highly capital in nature with long timeframes for returns
  • Illiquid assets where there is no readily available market to sell

• Review your investment mix
  Consider a change in the type and mix of investments held inside and outside of super. You may want to hold income-producing assets inside super and capital-heavy assets outside. We are not suggesting selling all investments, as this could realise a large capital gain. Rather, when making current investment decisions, you may want to keep this in mind.

• Franking credits still matter
  These can still reduce the overall tax paid within super (separate to Division 296 tax), and any excess may be refunded to the fund.

Common Misunderstandings

“I’ll sell and repurchase my assets – that’ll solve it.”
This is not correct. This will just trigger capital gains or losses inside your fund.  It will not alleviate exposure to market fluctuations used to calculate the new tax. It could result in some form of tax avoidance.

“I should move my property out of super.”
Be careful – this could trigger capital gains tax and stamp duty. Additionally, the land tax inside super is generally at a lower rate than outside.

So, Should I Do Anything Right Now?

Short answer: No, not yet.
Until we see the final legislation, it’s wise to hold off on big moves. You’ll still have time before 30 June 2026 to make any necessary adjustments.

Acting too hastily could be detrimental, as once money or assets are withdrawn from super, you most likely will not be eligible to contribute them back.  Additionally, the overall tax may still be lower within the super environment than outside and may remain the best option depending on your personal circumstances.

We’ll Keep You Posted

We’re closely tracking the developments and will keep you updated as things unfold. In the meantime, if you have questions or want to explore your options, we’re here to help.

As always, we are here to assist you, reach out to either Sharon Gdanski or your director relationship to see if you are eligible or if any of these strategies may assist you.

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The above summary is intended to be general in nature. Should you believe that any of the above matters may be relevant to you or your Group’s particular circumstances, please discuss the specific details with your Slomoi Immerman Partners advisor.