The resounding Labor victory in the 2025 election firmly put the Division 296 tax back on the agenda. Yet, we are still in the dark on the what, how and when.
The proposed start date is 1 July 2025, with the measure imposing an additional 15% tax on earnings attributable to superannuation balances above $3 million. But eight weeks into the 2026 financial year, we are still yet to see legislation re-introduced into parliament after the failure to pass the first iteration in February 2025.
An overwhelming majority in the House of Reps will make for easy passage in the lower house, but with only 29 seats in the Senate, Labor will need to negotiate with either the Greens, the Coalition or the Crossbench to enact it into law. This gives rise to three parties to negotiate with:
Greens – the stated position of the Greens is to have a lower threshold of $2 million, but indexed to inflation.
Coalition – firmly opposed but open to negotiate, their position is not clear on what they are willing to accept.
Crossbench – a lottery of opinions and policies, unlikely to coalesce around a codified policy.
So, we wait to see what comes of the Labor minority in the Senate. In the meantime, let’s look at how the legislation works in its current format.
Case Study 1 – On the Cusp
Facts
$3m in super on 1 July 2025
Drawing $180,000 a year
Asset returns of 7% per year
If left in superannuation, total Div 296 tax of $6,400 is incurred over three years.
Case Study 2 - $6 million in Super
Facts
$6m in super ($2 million in pension, $4 million in accumulation)
7% total returns, no gains realised
Drawing $180,000
Taxable income of $100,000 outside of super
All else equal, the member is more than $17,000 better off by withdrawing funds from superannuation over a three-year period.
The best strategy for each investor impacted by the Div 296 Tax will be highly dependent on their circumstances, goals and overall wealth structure. But in general, there are a few things to consider.
Mix of assets in super and out of super
Balance between pension and accumulation balances
Valuations of unlisted assets
Liquidity of investments in superannuation
Overall estate planning objectives
Overall group structure
Addressing the Div 296 issue can be difficult and confusing. By modelling potential outcomes and reviewing asset location, contribution strategies, and liquidity planning, you can minimise the risk of adverse surprises if and when the tax takes effect.
Click here to organise a time with one of our experts to discuss how Division 296 could affect you.
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