Division 296 – Government finally comes to its senses!

After more than a year of discontent and uncertainty around the Government’s previously announced changes to taxes for members having a total superannuation balance of more than $3m (the proposed Division 296 tax), they have seemingly finally recognised that the taxing of unrealised capital gains is bad policy.

What has changed with Division 296

The original Division 296 was to come into operation from 1 July 2025 (despite there being no legislation). The start date has now been pushed back to 1 July 2026 (and there is still no legislation!), although the first important date will be 30 June 2027 (giving taxpayers another 18 months to get their affairs in order).

The announced changes are still looking to be an extra tax above the normal superannuation taxes, and it seems it will continue to be a personal tax in that the tax will be payable by the member (not a tax levied at fund level). The member can pay the tax from personal sources or withdraw it from their super.

The changes announced on 13 October 2025 do however, introduce a second $10m threshold (in addition to the original $3m threshold previously announced). However, both thresholds will be indexed (which was not the case under the original announcements). Indexation will however only be in $150,000 increments (meaning they won’t necessarily change every year).

There will be an extra 15% tax on “realised earnings” associated with the proportion of the member’s total superannuation balance that is over $3m. In other words, the additional tax will not be on all earnings.

If the member has a balance in excess of $10m, then there will be a further 10% tax on the realised earnings associated with the proportion of the member’s total superannuation balance this is over $10m.

What are “realised earnings”? According to the Government announcement, realised earnings will be based on the fund’s taxable income and calculations will be closely aligned to existing tax concepts.

An example (directly from Treasury’s Fact Sheet):

Emma – SMSF member with over $10 million

• Emma is 55 and a member of an SMSF and has a total super balance of $12.9 million at the end of the 2026-27 income year. That year she was attributed $840,000 of the fund’s realised earnings for the purposes of this tax.
• The proportion of her balance above the $3 million threshold is 76.74 per cent and the proportion of her balance above the $10 million threshold is 22.48 per cent.
• Emma’s BTSC tax liability is therefore $115,581 (0.15 x 0.7674 x $840,000 + 0.10 x 0.2248 x $840,000). Note the combined BTSC tax rate on earnings over $10 million is 25 per cent.

As noted above, the announced changes have not yet been legislated and no further information other than what included in the 13 October 2025 announcement has been released.

​If you would like to understand what these proposed changes could mean for you, contact your Johnsons MME advisor today.