The pitch was simple – tax super balances over $3 million – but the reality is far more complex and structurally disruptive than initially communicated.
Division 296, positioned as a fairness initiative, is set to materially impact the way advisers approach superannuation strategy, asset allocation and retirement planning for high-balance clients. While it was originally framed as targeting a narrow cohort, the policy’s design and implementation have left a much broader cross-section of Australians exposed.
And advisers will now have to navigate it.
The details matter
Div 296 imposes an additional 15% tax on earnings attributable to the portion of a client’s total superannuation balance over $3 million. Key technical aspects include:
- It applies from 1 July 2025, subject to passage of legislation
- It’s calculated on proportional earnings, including unrealised capital gains
- There’s no indexation of the $3 million threshold
- It’s a personal tax, assessed and reported via the individual’s tax return, not levied at the fund level
While designed to simplify administration across large APRA funds, the mechanics fall awkwardly on SMSFs, where tracking realised gains is already common practice.
The concern isn’t the intent – it's the execution.
Abandoned alternatives
Even though Treasury has said Div 296 was subject to a robust consultation process, leading professional bodies have offered multiple viable alternatives. These included:
- Taxing only realised gains for SMSFs, which already report these metrics
- Applying a deeming rate to balance simplicity with fairness, as suggested by the SMSF Association
- Deferring the tax until withdrawal, aligning with liquidity events and retirement access
None of these ideas were adopted. The broader consensus among practitioners is that Division 296 represents a legislative overreach that ignores SMSF capabilities and prioritises uniformity over nuance.
Strategic consequences
Division 296 fundamentally alters the investment landscape for SMSFs. Growth assets like direct property and speculative equities now carry unrealised gain tax risk. Liquidity becomes paramount, especially in years where asset values spike. And reweighting towards fully franked dividend shares, cash and term deposits is gaining traction
Here, though, advisers face a double-edged sword:
- Rebalancing to avoid Div 296 may trigger capital gains tax in the accumulation phase
- Avoiding Div 296 entirely may limit portfolio growth and compound outcomes over time
As Heffron Consulting managing director Meg Heffron recently put it, “Trying to avoid one tax might simply trigger another."
How it changes behaviour
This isn’t just about tax, though. Div 296 shifts the behavioural context in which clients view superannuation, which has long been considered the cornerstone of retirement planning.
Now, trust in the long-term stability of superannuation is eroding. Clients are questioning large balances as a goal, younger Australians are more likely to redirect long-term wealth outside the system and strategic flexibility is being compromised by uncertainty around rule integrity.
The result? A rising reliance on non-super structures such as family trusts, private investment vehicles and investment bonds to manage future compounding growth.
What advisers need to do
So, what should advisers do right now? To start with, I think they need to:
- Model projected total super balances (TSBs) under various market scenarios to estimate likely Div 296 exposure
- Segment clients by proximity to the $3 million threshold and retirement age
- Review asset allocation with a tax-efficiency lens
- Stress-test SMSFs with illiquid or lumpy assets for potential cashflow shortfalls
- Educate clients on why “doing nothing” may still have strategic value, depending on their age and time horizon
Division 296 is not just a tax reform; it’s a strategic pivot point. It challenges advisers to lead the conversation on structure, behaviour and long-term wealth design. As legislative pressure on super continues, the value of proactive, context-driven advice becomes a lot clearer.
Our job isn’t to react to policy. It’s to anticipate the second and third order effects – and help our clients act accordingly.
Advisely Contributor
