Treasurer Jim Chalmers has announced significant changes to the proposed Division 296 tax, softening earlier concerns and reshaping how high-balance superannuation accounts will be taxed. At MLS Financial Penrith, we break down what the new rules mean and how they may affect members with large super balances—particularly SMSF trustees and high-net-worth individuals.
Background – The Original Proposal
When it was introduced in 2023, Division 296 aimed to apply an additional 15% tax on earnings associated with the portion of a member’s super balance above $3 million.
The proposal was widely criticised because:
- Unrealised gains were included in the calculation
- Members could face tax bills on assets they had not sold
- Valuations could fluctuate significantly year-to-year
- SMSF trustees faced major compliance and liquidity challenges
Although fewer than 0.5% of Australians were expected to be affected, industry concern grew around complexity, fairness and cash-flow risk.
The Revised Design – A More Practical Approach
The Government has now reshaped the model in response to industry feedback, creating a more workable and progressive system.
1. Unrealised Gains Removed
The most significant change is the removal of unrealised gains from the calculation. Only realised earnings will now be captured:
- Interest
- Dividends
- Rental income
- Realised capital gains
This drastically reduces compliance issues and removes the risk of forced asset sales to meet tax bills.
2. A New Two-Tier Progressive Tax Framework
Instead of a flat 15% Division 296 tax, the system will now operate on a tiered structure:
Balances above $10 million:
Effective tax rate of 40%
Balances between $3 million and $10 million:
Effective tax rate of 30% (existing 15% + new 15% Division 296)
3. Indexed Thresholds
Both thresholds will be indexed annually to CPI:
Balances above $10m increase in $500,000 increments
$3m–$10m band increases in $150,000 increments
4. Deferred Start Date
Division 296 will now commence on 1 July 2026, with the first assessments expected for the 2027–28 financial year.
Implications for Members With Large Balances
Removing unrealised gains is a major win for super members with substantial holdings. Key impacts include:
More Predictability and Less Liquidity Stress
Members will only pay tax on real earnings, allowing for more accurate planning and reducing risk during volatile markets.
Higher Tax for Very Large Balances
While the rules are fairer overall, balances above $10 million will now face a significantly higher 40% tax rate on earnings.
High-balance SMSFs may need to review:
- Realisation timing of assets
- Diversification strategies
- Liquidity management
- Asset location (inside vs. outside super)
Extra Time to Prepare
The delay to 2026 provides a valuable window to model outcomes, restructure portfolios if needed and implement strategies gradually.
What Happens Next?
The revised Division 296 framework still requires Senate approval, and detailed legislation is expected soon.
At MLS Financial Penrith, we specialise in superannuation and retirement planning, and we’re monitoring the developments closely. As more detail becomes available, our advisers will be ready with market-leading strategies for clients who may be impacted.
If you have a large super balance or an SMSF and want to understand how Division 296 may affect you, professional advice is essential. We’re here to help you plan ahead with confidence.
Written by:
Adrian Guy – BBus (Finance & Economics), MLS Financial
Disclaimer:
This information is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider speaking to a qualified financial planner before making any financial decisions. MLS Financial and Infocus Securities Australia Pty Ltd do not accept responsibility for actions taken based on this content.