Division 296: The Tax Reform That Could Reshape Retirement in Australia

Andre Dirckze
May 26
4 min read

By Andre Dirckze | Wealth Management Strategist.

Gold Coast, May 26, 2025 — In the quiet corridors of wealth management firms and the boardrooms of self-managed super funds, a new acronym is causing a stir: Division 296. It’s not just another line in the tax code—it’s a seismic shift in how Australia treats retirement savings. And for those with more than \$3 million in superannuation, the clock is ticking.

The Basics: What Is Division 296?

From 1 July 2025, individuals with superannuation balances exceeding >$3 million will face an additional 15% tax on the earnings attributed to the portion of their balance above that threshold. This is on top of the existing 15% tax on concessional earnings—effectively doubling the tax rate to 30% for some investors.

But here’s the kicker: the tax applies to unrealised gains. That’s right—if your super fund’s assets increase in value, even if you don’t sell them, you could still owe tax.

A Tax on Wealth That Hasn’t Been Realised

This concept has drawn sharp criticism from across the financial sector. At the AFR Super & Wealth Summit 2025, industry leaders didn’t mince words. “This is a tax on fiction,” said one prominent fund manager. “It’s like taxing someone for inheriting a Picasso before they’ve even unwrapped it.”

The policy’s reliance on valuation-based taxation introduces volatility and uncertainty. In a rising market, investors may face large tax bills—only to see those gains evaporate in a downturn, with no refund mechanism in place.

The Non-Indexed Trap

Perhaps the most insidious feature of Division 296 is that the \$3 million threshold is not indexed to inflation. In today’s dollars, that might seem like a high bar. But as asset prices rise and inflation compounds, more Australians will be swept into the net.

“This is bracket creep by stealth,” said a senior adviser at the summit. “It’s not just the ultra-wealthy who need to worry. In 10 or 15 years, this could hit middle-income professionals who’ve simply saved well.”

What Advisers Are Urging Clients to Do

Revalue Assets Strategically

Advisers are working with clients to reassess the value of assets held in their super funds—especially those in SMSFs. By updating valuations before 30 June 2025, clients may be able to lock in a higher cost base, reducing the appearance of growth in future years and therefore lowering the Division 296 tax burden.

This is particularly relevant for illiquid assets like property or private equity, where valuations are not automatically updated.

Split Super Balances Between Spouses

Where one partner has a significantly higher super balance, advisers are recommending contribution splitting or redirecting future contributions to the lower-balance spouse. This strategy helps both individuals stay under the >$3 million threshold, potentially avoiding the tax altogether.

It’s a simple but powerful tactic that can preserve tax efficiency without reducing overall household wealth.

Redirect New Investments Outside Super

For clients nearing the threshold, advisers are recommending a pause or cap on further super contributions. Instead, they’re guiding clients to invest through:

Family trusts, which offer flexibility in income distribution and estate planning.
Private investment companies, which provide flat tax rates and control over retained earnings.
Direct ownership, which avoids super-specific tax rules and gives greater liquidity control.

This shift is about regaining control over how wealth is taxed and accessed.

Plan for Liquidity

Because Division 296 taxes unrealised gains, clients may face tax bills without having sold any assets. Advisers are helping clients ensure they have enough liquidity to meet these obligations—whether through holding more cash, maintaining a buffer in listed equities, or establishing lines of credit.

The goal is to avoid forced sales in down markets, which could compound losses.

Model Future Scenarios

Sophisticated clients are being offered scenario modelling to understand how different market conditions could affect their super balance and tax exposure. This includes:

Simulating bull and bear markets.
Projecting tax liabilities over 10–20 years.
Stress-testing portfolios for liquidity under adverse conditions.

This level of planning is essential for those with complex asset mixes or illiquid holdings.

A Case Study in Complexity

Take the example of a 62-year-old retiree with a $4.2 million super balance, mostly in commercial property and ASX-listed shares. If their portfolio appreciates by 8% in a year, that’s a $336,000 unrealised gain.

The portion of that gain attributable to the $1.2 million above the threshold—$96,000—would attract an extra $14,400 in tax.

But here’s the twist: the property hasn’t been sold. The shares haven’t been touched. The gain is entirely on paper. Yet the tax bill is very real.

And if the market corrects the following year? The tax is still due.

There’s no offset, no carry-back, no relief.

Conclusion: A Policy That Misses the Mark

Division 296 may have been born from a desire for fairness, but its execution is flawed. It penalises savers, distorts investment behaviour, and introduces complexity into a system that should be simple and secure.

As one summit attendee put it: “This isn’t just a tax on the wealthy. It’s a tax on confidence. And that’s something we can’t afford to lose.”

Take Control Before the Tax Takes Hold

If your superannuation balance is approaching or exceeds $3 million, Division 296 could significantly impact your retirement strategy—even if you never sell a single asset.

At We Private, we specialise in helping high-net-worth individuals navigate complex tax reforms with clarity and confidence. Our team of expert advisers can help you: