Division 296 Update: What changed on 13 October 2025

Division 296 Update: What changed on 13 October 2025 – and what it means for high‑balance super members.

On 13 October 2025 the Government unveiled a revised design for the so-called “$3 million super tax” (Division 296). The headline changes include; no tax on unrealised gains, indexation of thresholds, and a new two-tier rate structure, with a later start date. The broad policy objective (reducing tax concessions for large balances) remains, but the mechanics are now materially different from what was previously on the table. 

Key changes at a glance

• No tax on unrealised gains. The revised measure abandons the earlier plan to include ‘paper’ gains in the Division 296 calculation. Only realised income (e.g. dividends, interest) and realised capital gains will be counted. 
• Indexed thresholds. The $3 million threshold will be indexed to inflation (details to be finalised in the bill and ATO guidance), reducing the ‘bracket creep’ risk flagged under the old design.
• Two-tier effective tax rates on attributable earnings:
  • 30% for the portion of earnings attributable to balances between $3m and $10m;
  • 40% for the portion attributable to balances above $10m.
    The fund’s 15% tax in accumulation continues to apply as usual; Division 296 operates as a top-up at the individual level to reach those effective rates. (Final calculation detail will be in the re-introduced bill and ATO guidance.) 
• Start date deferred to 1 July 2026 (previously 1 July 2025). The first assessment year would therefore be FY2026–27. 

What stays the same

Versus our June explainer: Division 296: Understanding the Proposed $3 Million Super Tax and its Implications

In our June article we outlined the original proposal: a 15% personal ‘top-up’ tax on earnings attributable to the portion of your balance above $3m, administered by the ATO at the individual level, but controversially including unrealised gains and with no indexation. The structure (top-up on attributable earnings) is substantially intact, but the inputs and rates have changed. 

What’s unequivocally gone is the unrealised-gains element, and thresholds will be indexed. 

How the new framework could work in practice (illustrations)

Disclaimer: These examples are indicative of a plausible “top-up to an effective rate” approach based on yesterday’s announcement. The final bill and ATO guidance will confirm exact mechanics (for example, how earnings are “attributed” to balance segments and the loss / credit rules). 

Example 1 — Balance $4.0m, realised earnings $200,000 (FY26–27)

• Portion of balance above $3m: $1m of $4m = 25%.
• Fund tax (15% on all realised earnings): $30,000.
• Earnings attributable to “>$3m” segment: 25% × $200,000 = $50,000.
• Division 296 top-up to 30% on that segment = extra 15% × $50,000 = $7,500.
• Total tax: $30,000 + $7,500 = $37,500 (18.75% effective on the $200k).

Example 2 — Balance $12.0m, realised earnings $600,000 (FY26–27)

• Segments at 30 June:
  • $3m–$10m band = $7m of $12m = 58.33% of balance;
  • >$10m band = $2m of $12m = 16.67% of balance.
• Fund tax (15% of $600,000): $90,000.
• Attributable earnings (by proportion, for illustration):
  • $600,000 × 58.33% = $350,000 at the 30% tier → extra 15% × $350,000 = $52,500;
  • $600,000 × 16.67% = $100,000 at the 40% tier → extra 25% × $100,000 = $25,000.
• Division 296 top-up: $77,500.
• Total tax: $90,000 + $77,500 = $167,500 (~27.9% effective on $600k).

Planning implications for larger balances

1. Liquidity planning still matters — but is less acute than under an unrealised model. With unrealised gains off the table, SMSFs holding illiquid assets (e.g., property) face fewer risks caused by market swings. 
2. Asset location: realised-gains sensitivity rises. Because only realised amounts count, the timing and composition of returns matter more. For members well above $3m (and especially above $10m), it may be sensible to review where you hold higher turnover or CGT-prone assets (inside/outside super), always weighing personal tax rates, estate planning, and risk. 
3. Contribution-splitting and balance-equalisation. Keeping each spouse’s balance below the thresholds can reduce the proportion of earnings exposed to top-up tax over time. This interacts with the transfer balance cap and retirement-phase planning.
4. Defined benefit interests — watch this space. The Government has flagged further work on how defined benefits are treated in the new design; details are expected as the bill is re-introduced. 
5. No hard cap. Funds are not forced out of super above a balance limit; instead, earnings attributable to segments above the thresholds are taxed at higher effective rates. This preserves the ability to hold assets in super while rebalancing as needed. 

How this differs from our June explainer

What should you do now?

• Don’t rush to restructure; the bill must be re-introduced and crucial further details will be confirmed.
• Model your exposure for FY2026–27 under a realised-earnings, two-tier framework.
• Review liquidity and asset-location settings for members likely to sit above $3m (and especially $10m).
• Consider spouse-equalisation and contribution strategies within overall retirement objectives and the transfer balance cap.

At Jaquillard Minns, we can calculate your potential Division 296 exposure under the revised rules and map out sensible, staged actions that align with your broader retirement plan.

This article is general information and does not consider your objectives, financial situation or needs. Please seek personalised advice before acting.