Guide to Division 296: Superannuation Tax

It’s June already, and here comes the ‘headache’ tax season again for everyone who is concerned. One of the most talked-about topics in this year’s tax season is Division 296 in SMSF news. Designed to impose an additional tax on superannuation balances exceeding $3 million, this proposed policy has raised concerns across the sector, particularly from the SMSF Association and individual trustees alike. In this guide, let SMSF Loan Experts break down what the upcoming Division 296 actually is, how it works, and what it could mean for you if you manage or consider an SMSF.

What Is Division 296?

Division 296 is a proposed superannuation tax measure with a presumed start date on the 1st of July. It would impose an additional 15% tax on the earnings of super balances over $3 million, starting from the 2025–26 financial year.

While the bill is targeted at high-value superannuation accounts, it introduces a major change: earnings would include realised and unrealised gains. This marks a dramatic shift in how superannuation is taxed in Australia and has been raising concerns and controversy since its proposal.

How Would Division 296 Work?

Here’s a simplified breakdown of how Division 296 will work from the 2025–26 financial year:

• Threshold: Individuals with super balances exceeding $3 million would be affected by Division 296.

• Tax Rate: An additional 15% tax would apply to the portion of earnings attributed to the balance above that threshold.

• Unrealised Gains: Crucially, the formula includes paper gains (value increases in assets that haven’t been sold).

• Annual Valuations: Superannuation balances would be assessed year-on-year, meaning fluctuations in asset values could result in significant tax impacts—even without any cash flow event.

Why Division 296 Tax Is Controversial: Key Concerns Raised by SMSFA

The SMSF Association (SMSFA) and broader industry stakeholders have expressed strong opposition since the new tax legislation was proposed, citing several serious issues:

1. Taxing Unrealised Gains Is Unprecedented

Taxing income that hasn’t been realised is out of step with Australia’s current tax principles. This proposed legislation would essentially force individuals to pay tax on theoretical profits, even if they haven’t sold the asset or received any cash.

For SMSFs that hold illiquid assets like property or private equity, this is particularly dangerous and vulnerable to every asset they own. Trustees could face tax liabilities they might not be able to pay without selling core investments. Working with a reliable expert in refinancing and handling SMSF will help you get through a hard time with well-informed advice.

2. Disproportionate Impact on SMSFs

The policy was designed with large APRA-regulated super funds in mind in the first place, but SMSFs operate differently:

• SMSFs are more likely to hold direct property or niche investments.

• Requiring annual valuations and tax payments on unrealised gains adds administrative complexity and financial pressure.

• The lack of flexibility in SMSFs means trustees can’t easily rebalance or offset paper gains. As SMSFA CEO Peter Burgess stated: “The Government is actively undermining competition by hitting SMSFs—one of the few genuinely competitive parts of the superannuation market—with a tax designed to accommodate large superannuation funds.” SMSFA, as well as trustees, currently face difficulties in doing the tax this year and are hopeful for Division 296 to include amendments addressing such concerns.

3. Equity and Fairness Issues

According to the Australian Tax Office (ATO), if legislated, Division 296 does not account for:

• Age or retirement status: Retirees with high balances but little income are taxed just the same.

• Contribution timing: Those who made larger contributions early in life may be unfairly penalised.

• Market volatility: Someone with a strong market year could be taxed heavily only to lose value the next year without refund mechanisms.

To get more details on the proposed Division 296 and how it will likely impact your account and funds, our team at SMSF Loan Experts is ready to assess and offer expert advice.

4. Valuation Complexity and Compliance Burden

For SMSFs, especially those with non-standard or private assets, accurately valuing holdings each year is expensive and time-consuming. Trustees will likely need:

• Professional valuations

• More frequent reporting

• Greater reliance on accountants and tax advisers
  

This increases the cost of running an SMSF, potentially making it less attractive to new investors, contradicting the Government’s goal of encouraging retirement savings flexibility.

5. Lack of Refunds in Succeeding Years

After you’ve already paid tax on growth, if your balance decreases in an upcoming year, you can’t claim a refund for this decrease when Division 296 is officially applied. This creates a situation where people are taxed on gains that ultimately disappear.

Where the Policy Stands Now

As of early 2025, the Division 296 bill stalled in the Senate, largely due to crossbench opposition. However, it remains a bill and could resurface in a modified form.

The SMSF Association, alongside stakeholders such as the Business Council of Australia and the Council of Small Business Organisations Australia, has coordinated efforts to educate Senators on the implications—particularly on small investors, family-owned SMSFs, and venture capital funding backed by superannuation capital.

What SMSF Trustees Should Do

Even if Division 296 is delayed, it’s a wake-up call for SMSF members and advisers to:

• Review asset allocation and liquidity in their fund

• Monitor super balance projections in light of the $3 million cap

• Get advice about strategies to manage or reduce exposure

• Stay updated on SMSF news and regulatory developments
  

Speak to SMSF Loan Experts

If you’re concerned about how Division 296 could affect your SMSF or exploring new strategies like refinancing, asset restructuring, or SMSF property investment, consult with the pros like SMSF Loan Experts. Get the latest updates and official information to keep your fund tax-efficient. We stay across all changes to SMSF tax law, and we’re here to help you make smart, informed decisions. Contact SMSF Loan Experts today for trusted advice and personalised support.