Why the New Div 296 Changes Matter — And What You Need to Know

Over the last few months, the government has responded to feedback, legal advice, and stakeholder concerns by substantially revising its original design for the Division 296 tax. These changes reflect a recalibration of policy ambition versus practicality, but they also bring new complexity to tax and retirement planning. Below is a breakdown of the key updates, implications, and what to watch going forward.


Key Changes in Summary
Here are the major revisions:

1. New tiered tax rates on earnings for high super balances
   • For balances between $3 million and $10 million, the concessional tax rate on attributable earnings will now be 30% (up from 15%).
   • For balances over $10 million, the rate increases further to 40 %.
2. Indexation of thresholds
   Both the $3 million and $10 million thresholds will be indexed (e.g., to the CPI or a similar measure) so that bracket creep is moderated and balances do not progressively become unaffordable due to inflation.
3. Earnings tax to apply only to future realised earnings
   The revised approach excludes unrealised gains from triggering the higher tax. In effect, the elevated tax rates only apply to future realised earnings (i.e. when gains are crystallised).
4. Commensurate treatment for defined benefit interests
   To ensure consistency and fairness, the revised proposal will treat defined benefit (DB) super interests in a way that preserves equivalent tax outcomes. Treasury will consult further on implementation.
5. Extension of the judge-exemption in some cases
   The government has extended the existing exemption for certain judges, informed by updated legal advice, to ensure more neutral treatment across jurisdictions.
6. Delayed commencement to 1 July 2026
   Rather than the earlier expected start date, the revised regime will now begin from 1 July 2026.

What These Changes Mean in Practice
A. More Progressive Structure, Less Shock
The introduction of a second (higher) tax tier (40%) beyond $10 million means the government is adopting a more progressive design, placing the heaviest burden on the most significant balances. The indexing of thresholds is also a major concession, helping reduce the risk that inflation alone will push many into the higher tax net.
B. Reduced Liability Shock via the Unrealised Gains Exclusion
Originally, there was concern that the tax would apply to unrealised capital gains—i.e. increases in asset value even if the assets hadn't been sold. That design would have posed serious fairness, liquidity, and valuation challenges. The revised policy that limits the higher rates to future realised earnings softens that blow and makes administration more feasible.
However, “realised” in this context still requires clarity—Treasury consultation will be critical to ensure the rules are robust, especially for complex or illiquid assets, or where gains are crystallised by fund reorganisations.
C. Greater Certainty, More Time to Plan
By delaying implementation to 1 July 2026, affected individuals and their advisers now have more breathing room to review strategies, model outcomes, and adjust portfolios (if beneficial) before the tax kicks in.
D. More Equitable Treatment Across Structures
Including defined benefit interests in a commensurate way helps prevent loopholes or arbitrage between different types of super interests. While the details are yet to be fleshed out, the intent is to ensure fairness across the board.
The extension of the judge-exemption (for some) is a narrower but deliberate change driven by legal consistency.


Planning Considerations & Risks to Watch
As your accountant, here are a few caveats and strategic pointers to keep in mind as these changes evolve:

• Wait for final legislation before making major moves. The revisions show that the government is responsive. If you act prematurely (e.g. by liquidating assets) based on early drafts, you could trigger capital gains tax or lose flexibility if final rules differ.
• Valuation matters more than ever. Especially for “unrealised” assets, getting robust 30 June 2025 (and 2026) valuations will be crucial to establishing baselines.
• Cash flow and liquidity risk. Moving to realized gains taxation places more emphasis on making sure you have liquidity (i.e., cash or marketable assets) to meet tax obligations—not all assets can be sold on demand.
• Model multiple scenarios. The tiered structure means that small differences in growth rates or contributions can shift significant tax outcomes. Use sensitivity analysis to test worst- and best-case paths.
• Be wary of rebalancing too early. Strategic rebalancing might help, but forced sales before thresholds or unnecessary turnover could be counterproductive once rules crystallise.
• Monitor the consultation process, especially for DB interests. The implementation for defined benefit schemes will require careful drafting; we should stay engaged to influence outcomes that might affect fairness or taxation anomalies.

Final Thoughts (From Your Accountant)
These latest revisions to Division 296 represent a more considered and balanced approach than originally proposed. While the tax remains significant for the very wealthy, many of the harsher aspects (e.g. taxing unrealised gains) have been softened. The introduction of tiered rates, indexing of thresholds, and a delayed start date all make the landscape more manageable.
If your super balance is close to, or above, $3 million (or $10 million), now is the time to start running projections, reviewing investment structure, and ensuring your asset allocations, valuations, and cash positions align with what's coming—but with care, patience, and reliance on professional advice rather than reactionary moves.