Government implements $3 Million Super Tax Amid Stakeholder Pressure
Division 296 Update
The Albanese government’s plan to impose a new tax on superannuation balances above $3 million—known as Division 296—has undergone significant changes following sustained industry pressure and Treasury modelling.
Latest Status
Treasurer Jim Chalmers confirmed in mid-October that the government has dropped the most controversial element of the original proposal: taxing unrealised gains. The tax will now apply only to realised earnings, such as interest, dividends, rent, and capital gains. This change addresses liquidity concerns for SMSFs and rural asset holders.
The start date has been deferred by 12 months to 1 July 2026, with the first measurement point set for 30 June 2027. This means the first tax assessments will occur in the 2027–28 financial year. [bdo.com.au]
What Is Division 296 Now?
Division 296—part of the Better Targeted Superannuation Concessions (BTSC) package—will apply to individuals with super balances exceeding $3 million. Key features of the revised proposal include:
- Tiered Tax Structure:
- $3M–$10M: Additional 15% tax on realised earnings (effective rate 30%).
- Above $10M: Additional 25% tax on realised earnings (effective rate 40%). [au.andersen.com]
- Indexation:
- $3M threshold indexed in $150,000 increments.
- $10M threshold indexed in $500,000 increments. [bdo.com.au]
- Personal Tax: Liability rests with the individual, not the super fund.
- Low-Income Offset: LISTO increased from $310 to $810, with eligibility threshold raised to $45,000. [hudsonfina...ing.com.au]
Why These Changes Matter
The government’s retreat from taxing unrealised gains and its decision to index thresholds address two major criticisms:
- Liquidity risk for SMSFs holding illiquid assets.
- Bracket creep that would have captured more Australians over time.
Industry bodies such as the SMSF Association and CPA Australia have welcomed these changes, though concerns remain about complexity and compliance costs. [investax.com.au]
Political and Economic Implications
The revised plan is expected to raise around $2 billion over the forward estimates, down from the original $6.2 billion forecast. This leaves a $4.2 billion budget gap, but the government argues the reforms remain fiscally responsible.
Public polling still shows strong support for targeting ultra-large super balances, while critics warn that ongoing changes risk undermining trust in the super system. [pitcher.com.au]
What’s Next?
- Draft legislation is expected to be introduced in early 2026 after further consultation.
- The government will seek support from the Greens and crossbenchers. The Greens have signaled openness to the revised plan, while the Coalition remains opposed to any additional super tax. [bdo.com.au]