Division 296 Superannuation Tax Changes (Update 13/10/2025)

Our previous blog post explained how the proposed Division 296 tax would work and criticised several factors including that:

1. Tax would be paid not only investment income, but also unrealised capital gains.

2. The $3m cap would not be indexed

We are pleased to report that both of these issues have been addressed and that the proposed tax will no longer be applied to unrealised gains, and the cap will be indexed.

However, it is not all good news for high net worth individuals: The government has instead proposed an additional amendment that balances above $10m would incur tax at 40%.

This change is interesting because as the visual shows, for high net worth individuals, for the first time, superannuation could now be a higher tax rate environment than the company tax rate. From a tax on earnings perspective, this immediately makes bucket companies and investment bonds relatively more attractive.

It also means that holding a mix of personal investments could be more tax effective than utilising superannuation alone.

These measures mark a monumental shift since the transfer balance cap was introduced on 1 July 2017. Prior to this date, superannuation once converted to an Account Based Pension was the undisputed best place to store wealth - the income and capital gains were fully tax free and there were no limits.

In this new tax environment, the need for high net worth individuals to receive Financial Advice has never been more important. This new proposal could/should lead clients and their advisers to ask "which tax structure/name should I buy my investments in?"

Overall, these new amendments to the division 296 tax are much better for people with illiquid assets (like farms within SMSFs) and younger generations through the addition of indexation.

However, once this amendment goes through, it is important that the government stops tinkering with superannuation rules and ensures people have faith in the system. It's important people are encouraged to make additional contributions to reduce the reliance on and the cost of the government funded Age Pension, and this won't happen if the rules are changed every election.

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