Big changes on the proposed $3M Division 296 Superannuation Tax

The Federal Treasurer, Jim Chalmers, has today announced a significant revision to the government’s proposed Division 296 superannuation tax reforms — effectively a backdown from the earlier, more aggressive proposal.

The reforms now include several key concessions aimed at improving fairness and addressing widespread industry concerns.

What’s Changing

• Tax on Realised Earnings Only
  The additional 15% tax will now apply only to future realised investment earnings, not unrealised gains. This ensures members aren’t taxed on asset values that haven’t been sold — a major win for self-managed super funds holding assets like property and unlisted investments.
  

• New $10 Million Tier Introduced

  • Earnings on balances between $3 million and $10 million will be taxed at a total rate of 30% (15% existing + 15% additional).

  • Earnings on balances above $10 million will be taxed at 40% (15% existing + 25% additional).
    

• Indexed Thresholds
  The original $3 million balance threshold and the new $10 million threshold will now be indexed over time, helping maintain fairness as super balances grow.
  

• Deferred Start Date
  Implementation has been pushed back from the original proposed date of 1 July 2025, with the new rules to commence from 1 July 2026 (FY27).
  

• Defined Benefit Schemes
  Equivalent treatment will apply to defined benefit interests, with Treasury to consult on implementation details.

What’s Not Changing

The government remains committed to introducing an additional 15% tax on earnings for superannuation balances above $3 million. Only the proportion above $3 million (and now also above $10 million) will attract the additional tax of 15% or 25% respectively.

In the case of Self Managed Super Funds, these rules apply to each individual superannuation member, not the total size of the fund. Superannuation members with balances less than $3 million will not be immediately impacted by these new rules (but may in the future as balances grow).

Support for Low-Income Earners

In a separate announcement, the government will increase the Low Income Super Tax Offset (LISTO) from $500 to $810, and extend eligibility to incomes up to $45,000 (previously $37,000).
This change, effective from 1 July 2027, ensures that low-paid workers will not pay more tax on their super contributions than on their wages once the Stage 3 tax cuts are fully in place.

FMA will continue to monitor Treasury’s consultation process and will keep you informed as draft legislation is released. If you have queries regarding any of the content in this update, please do not hesitate to contact our office directly on 02 9540 6888 or via email at info@fmapartners.com.au.