Understanding the Division 296 Super Tax: What It Means If You Have Over $3 Million in Super

Client Example: How Division 296 Could Apply in Practice 

Let’s take the case of James, a business owner nearing retirement with a superannuation balance of $4 million. 

Over the next financial year: 

• His super grows to $4.3 million 

• He makes $30,000 in concessional contributions 
• He withdraws $80,000 in pension payments 

To calculate James’s Division 296 tax: 

1. Earnings = ($4,300,000 + $80,000 – $30,000) – $4,000,000 = $350,000 
2. Proportion of Earnings above $3 million = ($4,300,000 – $3,000,000)/ $4,000,000 = 32.5% 
3. Tax Liability = 15% x $350,000 x 32.5% = $17,062.50 

So, James would face a Division 296 tax bill of approximately $17K .

Key Issues with Division 296 

Tax on Unrealised Gains 

Perhaps the most contentious feature, Division 296 applies even to gains that haven’t been realised. If your investment value increases, you’ll be taxed whether or not you’ve sold. 

Risks: 

• Cash flow issues if assets aren’t sold to cover tax 

• Volatility exposure if values drop after tax is paid 

• Valuation burdens for SMSFs with illiquid assets like property 

No Refunds for Losses 

If your super balance drops below $3 million after a year you paid Division 296 tax, you don’t get a refund, only a carry-forward loss to offset future earnings. 

Fixed Threshold 

The $3 million cap is not indexed, so more Australians could be caught in future as balances grow naturally. 

Complexity 

The formula involves multiple moving parts: yearly valuations, net contributions, and tracking across all super accounts. This adds administrative load and potential for errors or confusion. 

What Can You Do? 

While the legislation is not yet law, it’s advanced and smart investors are already planning. 

Before 30 June 2026, consider: 

• Review your asset mix: Illiquid assets may pose valuation and cash flow challenges. 

• Plan for tax liabilities: Ensure you have strategies to manage potential tax payments. 

• Seek professional advice: A financial adviser or accountant can help you navigate the implications and explore options like asset reallocation or restructuring. 

Importantly, do not withdraw or restructure prematurely. If the legislation is amended or fails to pass, you may lock yourself out of future tax advantages. 

Need clarity around Division 296? Poole Advisory is here to help. 

Division 296 represents a major shift in the way high super balances are taxed. At Poole Advisory, we help individuals across Bowral, Sydney and the Southern Highlands plan for the long term, not just the next legislative change. 

Let’s make sure your superannuation and investment strategy is future-ready. 

For more information on how Poole Advisory can help you navigate Division 296 and protect your long-term retirement plan, get in touch today or book an appointment. 

Compliance Disclaimer:
This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns.

Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917