Why You Shouldn't Be Worried About the Div 296 Tax (Yet)

An Accountant’s Perspective
 
There’s been a lot of noise in the media lately about the proposed Division 296 tax – a 15% tax on earnings attributed to superannuation balances exceeding $3 million. While the headlines might sound alarming, especially for those who’ve worked hard to build their retirement savings, it’s important to take a step back and look at the facts calmly and objectively. As a practicing accountant, here’s why I believe most Australians shouldn’t be overly concerned at this stage.

1. It Hasn’t Passed Parliament Yet
First and foremost, the Division 296 tax is still a proposal. It has not yet passed through Parliament and, as with any piece of draft legislation, there is always the potential for changes—both major and minor—before it becomes law. Legislative processes can take time, and it's not uncommon for proposals to be amended, deferred, or even withdrawn. Jumping to conclusions based on what might happen is often premature.

2. You’ll Have Time to Review Your Structure
Even if the legislation does pass in its current form, the new tax is not set to come into effect until 1 July 2025. This means you will have until 30 June 2026 to review your superannuation arrangements and make any necessary adjustments. That’s a significant window of time to consult with your financial adviser or accountant and consider your options carefully.

3. Most Super Balances Won’t Hit the $3 Million Threshold Anytime Soon
Despite how the media might portray it, the reality is that most Australians are not approaching a $3 million super balance. For those who are concerned, it’s worth noting that superannuation legislation has undergone considerable change over the past 30 years—from contribution caps to pension rules—and will likely continue evolving. By the time your balance actually reaches $3 million, the rules may look very different again. Trying to plan for a moving target decades in advance may not be the most productive approach.

4. Early Restructuring Could Trigger Capital Gains Tax
While it may be tempting to restructure your investment portfolio in anticipation of the new tax, any changes made now could result in immediate Capital Gains Tax (CGT) consequences. Selling down assets or moving investments out of super could trigger significant tax liabilities that outweigh the potential benefits of avoiding Division 296. It’s critical to carefully model the outcomes with a tax professional before making any serious decisions.

5. The Tax Only Applies to Earnings Attributed to the Excess
Perhaps the most misunderstood part of the proposed Division 296 tax is how it’s calculated. The additional 15% tax only applies to the earnings attributed to the portion of your super balance that exceeds $3 million. So, if your balance is just over the threshold—say $3.1 million—the tax impact will be relatively minor, not a blanket 15% on your entire earnings.

Final Thoughts
While Division 296 may eventually become law, it is not something to panic about right now. Sensible financial planning is always important, but reacting hastily to proposed tax changes can often do more harm than good. If you're unsure about how this may affect you, speak to your accountant or financial adviser—chances are, you have more time and flexibility than you think.