A Simple guide to the Updated Division 296 Tax

What’s happening?

The Government is introducing a new tax for Australians who have more than $3 million in superannuation. It’s part of the Better Targeted Superannuation Concessions plan, aimed at keeping tax breaks focused on those who need them most.

What Division 296 Means?

Division 296 adds an extra 15% tax on the earnings of super balances above $3 million. It’s a personal tax, meaning the individual, not the super fund, owes it.

You can either:

Pay the tax from your own money, or
Ask your super fund to release enough to cover it.

The ATO will work out the amount based on the information your fund reports.

Why People Were Originally Worried?

The first version of the plan caused concern because:

It would have taxed paper profits (unrealised gains) even if the assets hadn’t been sold.
The $3 million limit wasn’s indexed, so inflation woulf gradually pull more people into the tax.

This meant some Australians could get a tax bill without any actual income to pay it.

What’s Changed (and Why It’s Fairer Now)

The government listened to feedback and softened the design:

No more tax on paper gains – only realised earnings will count.
The $3 million cap will increase with inflation, in $150,000 steps.
A new $10 million cap introduces a higher rate (see below).
Losses can be carried forward to offset future profits.
Start date delayed: now begins 1 July 2026, based on balances at 30 June 2027.
Applies to all super types, including defined benefit pensions.

How the Tax Works — Simple Breakdown

Portion of Super Balance	Effective Tax Rate	Explanation
Up to $3 million	15%	Standard super tax rate
$3 million - $10 million	30%	Standard 15% + 15% extra personal tax
Over $10 million	40%	Standard 15% + 25% extra personal tax

Think of it like income tax brackets, but for your super earnings: the higher your super balance, the higher the tax on the earnings from that portion.

Why It Matters

Most people won’t be affected, since few Australians have over $3 million in super.

It keeps the system sustainable and fair, limiting generous tax breaks for very large accounts.

By removing tax on unrealised gains, it avoids unfair “paper” tax bills.

What Happens Next

Draft legislation is expected after Christmas 2025, followed by another short consultation round.
The new rules are due to take effect from 1 July 2026.
The first assessments are expected in the 2027 – 2028 financial year.
Professional accounting and SMSF bodies will keep advising the Treasury to ensure the rules stay workable.
If you have any concerns or would like to discuss how the changes may affect you, we are here to help.

Source: Tailored Accounts

Your Next Hire: Asset or Liability?

Hiring isn’t just about filling a role. It’s one of the biggest financial and cultural decisions you can make for your business. For small and medium enterprises (SMEs), the impact of a single hire can ripple through every part of your operations.

With the stakes far higher than just filling a vacant role, a successful hire can propel a company forward, while a misstep can become a costly lesson in time, morale, and finances.

From Data to Decisions: Why Trust and Judgment Still Lead the Way

At Xerocon Brisbane 2025, one message was clear: Artificial intelligence (AI) is here to stay, but it is not here to replace people. Just like automation in other industries, AI can make work faster and more precise, but the real value still comes from human judgment, trust, and relationships.

Smarter, Faster, Simpler: What's new from XERO

At this year’s Xerocon Brisbane, Xero announced a range of exciting updates aimed at making life easier for small business owners. The biggest highlight was the launch of Just Ask Xero (JAX), a new Artificial Intelligence (AI)-powered financial assistant designed to transform the way small businesses manage their finances.

From AI-powered assistance to better payment options and clearer insights, these changes will help save time on admin and give business owners more confidence in their numbers.

Be the first to access articles like these and more by subscribing to our newsletter.