Under the original proposed Div 296 tax, for members with balances over $3 million, an additional 15% tax would be applied to the value of their total superannuation balance (TSB) over $3 million. The most significant criticism levied is the fact that the proposed tax was not just on earnings and capital gains on assets that are sold, but also on growth in capital assets (i.e. unrealised gains). The $3 million threshold was also not proposed to be indexed, which meant more Australians would have been caught by this net as their balances increased over time.
Federal Government backflip on superannuation changes
Our first three articles in relation to Div 296 discussed what form the proposed Div 296 tax might have taken, broader considerations relating to the decision to withdraw funds from superannuation in response to the proposed tax, and the importance of valuations for calculating the TSB.
On 13 October 2025, the Hon Dr Jim Chalmers announced a significant shift in the Labor Government’s approach to Div 296. The proposed changes represent a move away from taxing unrealised gains and a refinement of how high-balance superannuation accounts will be treated. While this is a welcome move, there are still a number of issues that need clarification.
Key changes from the original proposed Div 296 include:
- Removal of the unrealised capital gains tax: taxpayers will no longer be taxed on the unrealised increase in value of capital gains tax assets. Tax will only be imposed on the sale of an asset or on income.
- New high-balance rate: a new two-tier system will be introduced:
- for balances above $3m but under $10m, the Government will proceed with an additional 15% tax applied to the value of the TSB over $3 million (i.e. the existing 15% plus an additional 15%); and
- for balances over $10m, a further 10% tax will be applied to the value of the TSB over $10m (i.e. 40% total).
- The Treasurer subsequently announced on 17 October that the higher superannuation tax will be payable on capital gains that accrue from 1 July 2026 (i.e. capital gains accrued before 1 July 2026 will continue to be taxed at the lower rate). It was also announced that the CGT discount for superannuation funds will be available for superannuation funds with a TSB over $3million.
- Deferred start date: commencement of the new rules has been delayed by one year, now applying from 1 July 2026.
- Indexation: the $3m and $10m thresholds will now be indexed, in the following increments:
- $150,000 for balances between $3m and $10m; and
- $500,000 for balances over $10m.
Questions to be answered
Although welcome, the Government’s decision to walk back elements of its proposed superannuation tax reforms is not comprehensive. For example, there remain further questions about whether the increased tax will apply solely to capital gains that have accrued after the legislation is introduced, or to all capital gains in respect of the fund assets.
The Department of Treasury fact sheet also indicates that the current iteration of the reform is still subject to superannuation sector feedback and consultation.
