By Jonathon Tainsh – Senior Financial Adviser, People + Partners Wealth Management
By Tatum West – Senior Manager, People + Partners Wealth Management Tax & Accounting
Australia’s superannuation system has long been one of the most effective vehicles for building retirement wealth. But for individuals with larger balances, the rules are changing.
From 1 July 2025, a new tax known as Division 296 is expected to apply to people with more than $3 million in total superannuation. The first assessment is expected to be based on balances at 30 June 2026.
This change will not affect the majority of Australians. However, if your balance is above $3 million — or you are heading in that direction — your wealth strategy will need to adapt.
This article provides general information only. Division 296 is proposed and not yet law at the time of writing. Please seek advice tailored to your circumstances before taking action.
What is Division 296?
Division 296 proposes an additional 15 per cent tax on a portion of your annual “superannuation earnings.”
Here is what makes it different from the current system:
- Earnings include unrealised gains: Growth in asset values counts, even if you have not sold the asset. If your fund owns property and the property rises in value, that increase is included in the calculation.
- Not on the whole balance: The extra 15 per cent is applied only to the proportion of your earnings that relates to the amount of your balance above $3 million.
- Calculated annually: The Australian Taxation Office is expected to assess the tax each year, based on the change in your adjusted superannuation balance.
- Payable personally: The liability would sit with you, not the fund. You may be able to pay from personal cash flow or elect to release the funds from your superannuation account.
- No indexation: The $3 million threshold is fixed. Over time, more Australians will fall into this regime as balances and markets grow.
Why this matters
Division 296 introduces two key challenges for those with larger balances:
- Liquidity pressure. You may owe tax on growth in illiquid assets such as property or private equity, even when there has been no sale and no cash released. This can create a “liquidity trap” — being asset rich but cash poor when the assessment arrives.
- Scaling impact. The additional tax is not a blanket 30 per cent across your entire balance. For someone just over $3 million, the additional tax may be only a few hundred dollars. For those with significantly higher balances, it can quickly reach tens of thousands of dollars each year.
Worked Example 1: Balance just over $3.1 million
Imagine your total superannuation balance is $3.0 million at 30 June 2025 and $3.1 million at 30 June 2026. No contributions or withdrawals are made.
| Step | Calculation | Result |
|---|---|---|
| Superannuation earnings | $3.1m – $3.0m | $100,000 |
| Proportion above $3m | ($3.1m – $3.0m) ÷ $3.1m | 3.23% |
| Taxable earnings | $100,000 × 3.23% | $3,230 |
| Division 296 tax | $3,230 × 15% | $485 |
Outcome: The additional tax is less than 0.5 per cent of your earnings. For individuals only slightly over the cap, the effect is relatively small.
Worked Example 2: Balance of $4.8 million
Now imagine your total superannuation balance is $4.5 million at 30 June 2025 and $4.8 million at 30 June 2026. No contributions or withdrawals are made.
| Step | Calculation | Result |
|---|---|---|
| Superannuation earnings | $4.8m – $4.5m | $300,000 |
| Proportion above $3m | ($4.8m – $3.0m) ÷ $4.8m | 37.5% |
| Taxable earnings | $300,000 × 37.5% | $112,500 |
| Division 296 tax | $112,500 × 15% | $16,875 |
Outcome: The additional tax is now meaningful — almost $17,000 on one year’s growth. As balances increase, the liability becomes more material.
Strategic implications
The proposed $3 million cap does not mean superannuation is no longer valuable. For most Australians, it will remain highly effective.
However, once balances exceed $3 million, continuing to grow within superannuation may not always be the most efficient approach. At this point, wealth planning becomes about balance — knowing when to stop adding to superannuation and when to direct funds into alternative structures.
Key areas for consideration:
- Manage contributions: Review whether non-concessional contributions are still appropriate if you are trending towards the threshold.
- Plan liquidity: If you hold illiquid assets, consider how you would fund potential Division 296 tax liabilities.
- Complementary structures: Investment bonds, private companies, and family trusts can each play a role in building wealth outside superannuation.
Complementary structures explained
Investment bonds
- Growth is taxed internally at up to 30 per cent. If held for more than 10 years (subject to contribution rules), withdrawals are generally tax free.
- Bonds offer flexibility, as funds can be accessed without preservation rules.
- They can be particularly powerful for estate planning — allowing beneficiary nominations, structured intergenerational transfers, and tax-efficient outcomes outside superannuation.
- For high-income earners, bonds may also reduce personal tax obligations, as tax is paid within the bond rather than at marginal rates.
Private companies
- Provide control and flexibility. Profits can be retained within the company and reinvested, taxed at either 25 per cent (if the company qualifies as a base rate entity) or 30 per cent.
- Directors can determine when and how dividends are paid, creating flexibility for personal tax planning.
- A company structure can enhance asset protection compared to holding investments personally.
- Particularly valuable for business owners after a liquidity event, such as selling a business, where a holding company can “warehouse” wealth outside superannuation while deferring personal tax.
Family trusts
- Allow income to be distributed each year to different family members, helping to make use of lower tax brackets.
- Can be combined with a corporate beneficiary (“bucket company”), allowing excess income to be taxed at the company rate.
- Highly flexible for succession and estate planning: trusts can hold assets across generations, without the restrictions that apply to superannuation.
- Widely used for multi-generational wealth, philanthropy, and inter-family governance.
Age-based planning
Your age and access to superannuation are critical in determining the right strategy:
- 65 and over: Full access to benefits allows you to make strategic withdrawals beyond the minimum pension requirements and redeploy funds into other structures. This provides flexibility and can reduce exposure to Division 296 tax in future years.
- 60 to 65: Transition-to-retirement income streams can allow a gradual move of funds outside the system while maintaining some concessional treatment. This can be a valuable window to rebalance investments.
- Under 60: The focus is usually on prevention — limiting contributions that may push balances over $3 million and redirecting new savings into alternative structures. This builds diversification and reduces future exposure.
Key message for clients
The proposed $3 million superannuation cap is not about abandoning superannuation. It is about recognising when other structures become more effective for your circumstances.
The right strategy will depend on your age, wealth trajectory, asset mix, and family goals.
This is where advice matters. By modelling outcomes and considering other strategies alongside superannuation, we can design a plan that continues to grow and protect wealth — while remaining tax-efficient for you and the next generation.
Ready to explore your options? Contact our team to discuss how these strategies might apply to your specific situation.
Disclaimer
People & Partners Wealth Management Pty Ltd ABN 67 127 250 613 is a corporate authorised representative of Fortnum Private Wealth Ltd ABN 54 139 889 535, holder of Australian Financial Services Licence (AFSL) No. 357 306. The content of this article is for general informational purposes only and does not constitute personal financial advice. It does not take into account your individual objectives, financial situation, or needs. Any advice we provide will be detailed in a formal advice document. The opinions expressed in this article are those of the authors at the time of writing and should not be taken as a recommendation to act. To the extent permitted by law, Fortnum Private Wealth Ltd and its associates accept no liability for any loss or damage incurred as a result of reliance on this communication.
