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Changes to the Government’s original Division 296 proposal.
 
 
   

Changes to the Government’s original Division 296 proposal.

News | Mehak Gaba | Released: 12/11/2025 | Read: 5 Mins

Division 296 introduces an additional 15% tax on earnings attributed to the portion of an individual’s superannuation balance exceeding $3 million. 

 

When the measure was first announced, there was significant criticism regarding two aspects — the taxation of unrealised gains and the absence of indexation for the $3 million threshold. 
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The Government has since addressed both concerns by  and  to maintain fairness over time removing the tax on unrealised gainsintroducing indexation.  In addition, a 40% overall tax rate will apply to the proportion of earnings corresponding to a member’s total superannuation balance exceeding $10 million. These changes are proposed to take effect from 1 July 2026.
   

Proposed major changes
   

⚙️ “Taxation of unrealised gains”

  • Original issue: The initial proposal said that even unrealised gains (paper increases in value — not actually sold yet) in your super fund would be taxed.

  • Problem: That was unfair because someone could be taxed on an increase in value that might later fall (for example, if property or shares drop in value).

  • Change proposed: The Government listened to criticism and now plans to only tax realised gains (actual profits), not just value increases on paper.
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⚙️“Lack of indexation of the threshold”

  • Original issue: The $3 million balance threshold was fixed, meaning it wouldn’t increase with inflation or rising balances over time.

  • Change proposed: The Government has now decided to index (adjust) the threshold — so it will increase gradually with inflation or changes in average wages, keeping it fair over time.

🗓️ “Delayed until 1 July 2026”

  • The start date has been pushed back one year — it will now begin 1 July 2026, not 1 July 2025.

  • That means the first reporting/assessment date will be 30 June 2027, giving everyone more time to prepare.

💬 “Legislation after Christmas with consultation”

  • The official law (legislation) hasn’t been passed yet.

  • The Government plans to release it after Christmas, followed by a consultation period, where industry experts, accountants can give feedback before it becomes law.

💬 “ Two-Tier System Introduced”

 

  • Original Issue: Additional 15% tax on earnings related to the portion of your total super balance exceeding $3 million. This meant those earnings were effectively taxed at 30% (15% existing fund tax + 15% extra).
  • Changes proposed:

Tier 1: Balances over $3 million – 15% additional tax on earnings.

Tier 2: Balances over $10 million – 40% total tax on earnings for that portion.
   

Examples from Treasury paper:
   

Example 1: Megan’s total super balance is $4.5 million.
 

The Division 296 tax only applies to the part of her super that is above $3 million.

 

So, out of her $4.5 million:

  • The first $3 million is not affected.

  • The extra $1.5 million (which is one-third or 33.33%) is affected by the new tax.

In that year, Megan earned $300,000 from her super (from both her funds combined).

Since only one-third of her balance is above $3 million, the Division 296 tax will apply to one-third of her earnings.

 

👉 That means:
15% × one-third of $300,000 = $15,000

So, Megan will have to pay $15,000 extra tax under Division 296.

 

 

Example 2: Emma’s total super balance is $12.9 million.
 

The Division 296 tax only applies to the part of her balance above $3 million, and even more if she has over $10 million.

So, we look at her balance in parts:

  1. First $3 million → Not affected by the tax.

  2. Between $3 million and $10 million → This part is affected by the extra 15% tax.

  3. Above $10 million → This part is affected more, with a higher (25%) combined tax rate.

Now, let’s work out the percentages:

  • Her total super is $12.9 million, so:

    • The amount above $3 million = $12.9m − $3m = $9.9 million.

    • The amount above $10 million = $12.9m − $10m = $2.9 million.

To find what portion of her total balance** is above those thresholds**:

  • $9.9m (above $3m) ÷ $12.9m = 76.74%
    → means about three-quarters of her balance is above $3 million.

  • $2.9m (above $10m) ÷ $12.9m = 22.48%
    → means about one-fifth of her balance is above $10 million.

Emma’s tax liability is therefore $115,581 (0.15 x 0.7674 x $840,000 + 0.10 x 0.2248 x $840,000).

 
   

Join my webinar on 27th November, 2025

Conclusions
   

The above are significant changes to the proposed legislation, and the full details will only become clear once the draft legislation is released or the Bill is introduced to Parliament. Certainty around the final design and timing of the Better Targeted Superannuation Concessions (BTSC) tax will only be available once the legislation is enacted.

 

We will continue to monitor developments closely as further information becomes available.

 

Based on the previous Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023, it appears Treasury intends to rebrand this measure as the BTSC tax, replacing the earlier reference to Division 296 tax.
   
   

Visit www.trustdeed.com.au for more details or call us on(02) 9684 4199
   

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