Amid criticism and requests for amendments to the proposed legislation, the Federal Government has placed the proposed Division 296 tax on hold.
While this was meant to commence on 1 July 2025, the fact that there has been so much opposition to its current form has meant introduction for the 2025-26 financial year is unrealistic.
Following the May 2025 federal election, the Government announced it intended to introduce a Bill to legislate its proposed Division 296. Initially proposed as part of the 2023-24 Federal Budget, a very short consultation was undertaken in October 2023, from which many recommendations from bodies such as the Tax Institute have not been implemented. The proposed Bill applies an additional 15% tax on superannuation earnings attributable to the part of an individual’s total superannuation balance above $3 million from the 2025 / 2026 financial year.
This tax is known as ‘Division 296 tax’.
For more information about the proposed changes earlier this year, read our article from last quarter: Super tax sparks alternative investment strategies – dmca advisory
SMSF Association Chief Executive Peter Burgess highlighted that there is growing discontent within the Labor Party over the proposed tax. “We don’t know if the Treasurer will amend or scrap this tax,” Burgess said, “but it is increasingly likely that if legislation is reintroduced, it won’t look the same as it has in the past.”
The main areas of concern for the Bill remain as follows:
Taxing unrealised gains – this is inconsistent with the current approach of how the system taxes capital gains and will cause a misalignment between taxes and available cash flow. What does this do to a property owner where valuations have been skyrocketing?
No indexation threshold – indexation is a key feature of other superannuation legislation, such as contributions and pension thresholds. No indexation has the potential for bracket creep, capturing more people into paying the tax
Utilising Losses – while losses can be carried forward to offset against future gains, it appears inequitable that a payment in one year can’t be recovered the following year in the circumstances of a recession and/or market crash
These developments underline the need to stay informed and prepared. While the Division 296 tax is not currently active, it remains a future consideration for high-balance funds. Trustees should monitor updates closely and consider reviewing their fund strategies to understand how any future legislation might impact tax obligations and retirement planning.
At dmca, we keep our finger on the pulse to track legislative changes affecting SMSFs and provide guidance to help trustees navigate complex tax developments. While the exact form and timing of the Division 296 tax remains uncertain, proactive planning and staying informed are key to ensuring you remain compliant and well-positioned for the future.