The Division 296 tax - What is ahead in 2025

The Australian government’s proposal to introduce an additional tax on high-balance superannuation accounts has been making headlines for over a year. See our article on the DIV296 Tax. If passed, the Division 296 Tax would impose an extra 15% tax on superannuation balances exceeding $3 million. The rationale? To reduce tax concessions for individuals with large super balances and ensure a fairer system for all Australians.

However, despite passing the House of Representatives in October 2024, the bill remains stuck in the Senate, and its future is uncertain. As a financial advisor, I’ve had countless discussions with clients about what this means for their retirement planning. So, let’s break it down—what is the Division 296 Tax, why is it controversial, and what should you consider moving forward?

The Division 296 Tax was introduced in November 2023 as part of the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023. While the Senate Economics Legislation Committee recommended its passage in May 2024, the bill has faced significant resistance in the Senate.

The key sticking points?

• Taxing unrealised capital gains: One of the most contentious aspects is that the tax applies to unrealised capital gains, meaning individuals could be taxed on assets that have appreciated in value—even if they haven’t been sold. This goes against traditional tax principles and could create liquidity issues for those holding property or other illiquid investments in their super.
• No indexation of the $3M threshold: Unlike many tax thresholds that adjust for inflation, this one is fixed at $3 million, meaning more people could get caught in its net over time as asset values rise.
• Crossbench resistance: Despite the government’s efforts to pass the bill, it has struggled to gain enough support from crossbench senators.

These are the three major roadblocks to the bill passing the Senate. With little movement on any of these issues, the bill remains at an impasse.

Financial experts and industry leaders have been vocal in their criticism. The SMSF Association has been at the forefront, warning that the tax could negatively impact small business owners, farmers, and individuals with large but illiquid assets tied up in their self-managed super funds (SMSFs).

Prominent investors like Geoff Wilson (Wilson Asset Management) have also weighed in, arguing that taxing unrealised gains is illogical and unfair. For example, if property values rise significantly, an SMSF could face a hefty tax bill without having the cash flow to cover it. This could force retirees to sell assets at inopportune times to meet tax obligations—disrupting long-term investment strategies.

Recognising the bill’s unpopularity, the government has tried several tactics to secure its passage. One strategy involved bundling the tax measure with other widely supported initiatives, such as banning credit card surcharges for government services. However, this attempt to sweeten the deal failed to win over enough senators.

As of February 2025, the bill remains in legislative limbo. With a federal election looming, the likelihood of it passing before Australians head to the polls is slim. That means the future of the Division 296 Tax is now a major election issue that many high-net-worth individuals and financial professionals will be watching closely.

While the tax hasn’t been enacted, it’s important to be prepared.

• Review your superannuation balance: If your super is approaching or exceeding the $3 million threshold, understand how the proposed tax might affect you.
• Assess your asset mix: If the bill does pass, assets like direct property holdings could become problematic due to the tax on unrealised gains.
• Stay informed: With the federal election on the horizon, political developments could directly impact your superannuation strategy.
• Consult your financial advisor: A tailored strategy can help mitigate potential impacts and ensure your retirement plan remains on track.

The Division 296 Tax is one of the most debated financial policy proposals in recent years. While its goal of reducing tax concessions for ultra-high-balance super accounts is clear, the practical implications—particularly around taxing unrealised gains—have raised serious concerns among financial experts and investors.

The bill is stalled for now, but its fate will likely be decided at the ballot box. If you’re a high-net-worth individual or an SMSF trustee, now is the time to review your financial strategy and stay ahead of any potential changes.