Division 296 tax (better targeted superannuation concessions): what it is, what changed, and what it could mean for you

Australia’s superannuation system is designed to fund retirement, not to operate as a perpetual low-tax wealth shelter. In February 2023, the Federal Government announced a new measure—commonly called the Division 296 tax—to reduce tax concessions for individuals with very large super balances. Since then, the proposal has been through extensive industry feedback, a lapsed first bill, and a major design reset in October 2025.

This update matters if you (or your clients) have, or are on track to have, multi-million-dollar total superannuation balances (TSB), particularly in SMSFs holding lumpy or illiquid assets such as property, private equity, farms, or business real property.

What Division 296 was originally going to do

The original 2023 proposal worked like this:

• If your TSB exceeded $3 million at 30 June, some of your super “earnings” above that threshold would be taxed at an additional 15%, on top of the usual concessional tax on super earnings.
• Earnings were to be calculated using a movement-in-balance formula that effectively included unrealised gains (paper increases in asset values).
• The $3 million threshold was not indexed, meaning more people would be captured over time through inflation.

Government estimates at the time suggested roughly 80,000 people would be affected at commencement.

Concerns raised during consultation focused mainly on the inclusion of unrealised gains (especially for illiquid SMSF assets), and the absence of indexation. Those concerns drove the 2025 redesign.

October 2025 redesign: what’s changed

On 13 October 2025, Treasury announced a revised approach under the broader Better targeted superannuation concessions (BTSC) package.

The key changes are:

1. Unrealised gains removed
   The revised policy moves to a realised-earnings approach that aligns more closely with standard tax concepts (interest, dividends, and realised capital gains), rather than taxing year-to-year paper revaluations.
2. A second threshold introduced at $10 million
   Treasury proposes a tiered system:
   • balances $3m–$10m are taxed more heavily on earnings, and
   • balances above $10m face a higher rate again.
     Public materials indicate the intended result is an effective 30% tax rate on earnings in the $3m–$10m band and 40% above $10m, compared with the standard 15% tax on super earnings.
3. Both thresholds to be indexed
   The $3m and $10m thresholds will be indexed to inflation, helping prevent bracket-creep from pulling in progressively smaller balances over time.
4. Start date moved to 1 July 2026 (subject to law)
   Treasury and the ATO now state commencement from 1 July 2026, assuming new legislation is introduced and passed.

The 2023 bills are no longer proceeding, so a fresh bill is required to enact the redesigned measure.

How the revised tax is expected to work (in plain English)

Final drafting is still pending, but Treasury and ATO administration work point to the following structure:

• Each year, your TSB at 30 June will be tested.
• If it’s above the indexed thresholds, an additional tax applies to earnings attributable to the excess portion.
• Earnings are expected to be realised earnings, not unrealised movements in asset values.
• The ATO is building new reporting, assessment, and election processes (including for SMSFs and defined benefit interests).

Because legislation isn’t final, some technical areas (for example, defined benefits, insurance proceeds, and certain reserve treatments) may still vary in the final form. Treasury has signalled further consultation.

What this could mean for high-balance members

Liquidity risk is reduced, but not eliminated

Removing unrealised gains is a meaningful improvement for SMSFs with illiquid assets. Under the original design, members could have faced a tax bill without any cash coming in to pay it.

However, realised earnings still require planning. If a fund sells a large asset and realises a significant gain, the extra tax could be triggered in that year.

Indexation makes the policy more stable over time

Indexation keeps the measure targeted at genuinely high balances, rather than gradually pulling in smaller balances through inflation.

The $10m tier creates a new planning “step”

The second tier indicates stronger focus on very large balances. Some families may consider whether super remains the most efficient place for capital once balances approach the higher band, depending on goals, risk profile, and estate outcomes.

Contribution and pension strategies should be re-tested

Once final rules are known, high-wealth clients may need to revisit:

• contribution levels and timing,
• asset-sale timing inside super,
• pension-start sequencing, and
• withdrawal/recontribution and estate strategies.

At this stage, it’s sensible to model scenarios rather than restructure immediately, given the measure is not yet law.

Expect greater ATO reporting focus

ATO co-design work indicates active development of:

• annual balance data matching,
• SMSF annual return alignment, and
• a dedicated Division 296/BTSC assessment framework.

Practically, high-balance members should expect more formal notices, valuation scrutiny for unlisted assets, and tighter reporting expectations.

Where things stand now

As at 27 November 2025:

• The revised settings are policy, not legislation.
• The original 2023 bills have lapsed and are marked not proceeding.
• Treasury and the ATO are co-designing administration and systems for rapid implementation after Royal Assent.
• The Government intends a start from 1 July 2026, dependent on a new bill passing Parliament.

For now, the right approach is to stay informed, model exposures, and avoid premature changes until the final law is settled.

Leaning on official ATO, Treasury and Federal Government sources, this article provides general information only and does not consider your objectives, financial situation, or needs. Before acting, consider whether it is appropriate to your circumstances and seek personal advice.

How Indigo Financial can help

If your total superannuation balance is near or above the $3m indexed threshold, Indigo can help you:

• model your likely exposure under the realised-earnings method,
• plan SMSF liquidity around asset sales,
• review valuation and reporting strength for unlisted/related-party assets, and
• align super, non-super, and estate structures for the post-2026 environment.

Contact Indigo Financial on (08) 8212 8585 if you need help with any of your accounting and taxation needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.