Author: Natasha Sweeting, Partner
15/10/2025
More than two years on from the first announcement and after much anticipation, on Monday 13 October 2025, Treasurer Jim Chalmers announced major changes to the proposed $3M super tax legislation (known as Division 296 tax).
It was a controversial tax in its original form and after much campaigning, the proposed changes have been welcomed across the accounting and superannuation industry. The Government has made two key concessions:
- the scrapping of taxing unrealised capital gains that was largely publicised as going against the current tax system; and
- introducing indexation on the $3M balance threshold.
While this announcement is new and more information is still to be released, the announced amendments to the Better Targeted Superannuation Concessions bill will now see:
- Division 296 tax payable only on realised investment earnings generated by the portion of an individual’s Total Superannuation Balance (“TSB”) that exceeds $3M. The realised earnings approach being aligned with existing income tax concepts.
- A second threshold of $10M being added, beyond which the tax rate will rise to 40%. For a TSB between $3M and $10M, the tax rate of 30% is applied, while a TSB below $3M will maintain the current concessional rate of 15% (or nil tax to the extent of any Account Based Pension balance).
- The new balance thresholds for $3M and $10M will have annual indexation applied in connection with the Transfer Balance Cap. The indexation to apply as follows:
– $3M threshold, indexation in $150,000 increments.
– $10M threshold, indexation in $500,000 increments.
- The start date has been delayed a year, commencing 1 July 2026. The first Division 296 assessment year being the 30 June 2027 financial year.
- Those with Defined Benefit Pensions to be included.
There are no changes to how individuals will be notified of their Division 296 liability and the option to pay the tax directly or from their superannuation fund remains.
Realised investment earnings
In its original form, the Division 296 tax was to be assessed on an individual’s earnings based on changes in their TSB, adjusted for withdrawals and contributions. It was this change in TSB that would have assessed members on unrealised gains.
The proposed changes will now have the tax applied on the realised earnings. Essentially, the fund’s taxable income attributable to the member, adjusted for elements such as contributions and pension phase income.
There is still uncertainty on the exact definition of “realised earnings”. Currently the announcement states that it will be ‘closely aligned to existing tax concepts’ but it is not clear on the specific modifications outside of contributions and pension phase income. Most notably:
- How will unrealised gains accrued as at 1 July 2026 be treated when later realised?
- Will the realised earnings be based on net discount capital gains or gross capital gains?
We will continue to monitor the definition and modifications as this information comes to hand.
Tiered approach to tax rate
The Government proposes to modify the calculation methodology to capture TSBs within the two new thresholds.
After establishing individuals with a TSB of $3M or more, superannuation funds will be required to calculate and report to the Australian Taxation Office (“ATO”) the realised earnings that are attributable to that individual.
Where individuals have TSB’s of $10M or more, there will be a two-part calculation:
- The ATO calculates the proportion of the TSB exceeding $3M (i.e. the % of the TSB which exceeds $3M). Known as TSB1
- The ATO calculates the proportion of the TSB exceeding $10M, if applicable (i.e. the % of the TSB which exceeds $10M). Known as TSB2
Once the TSB1 and TSB2 are established, the Division 296 tax liability for that individual’s interests is calculated:
Division 296 tax = (15% x Total Earnings x Proportion of TSB1)
+ (10% x Total Earnings x Proportion of TSB2)
If an individual’s TSB is below $10M, only TSB1 is calculated.
The revised tax liability formula will give the effect of applying cumulative tax rates to a member’s realised earnings as follows:
What’s next
The proposed legislation is still to be released, but the Government anticipates introducing the legislation as soon as possible in 2026. During this time, they will undertake further consultation with the superannuation industry and relevant professional bodies as to the implementation.
We will continue to monitor developments with respect to this proposed new legislation and will provide further updates as details become known. Given the revised draft legislation has not yet been released, and the implementation has been delayed by a further year, there will be adequate time to review your superannuation strategy before it takes effect.
More details on the Government’s announcement and a fact sheet on the key changes can be found here:
Better Targeted Superannuation Concessions changes | Treasury.gov.au
Blaze Acumen comment
The changes to the proposed Division 296 tax regime are welcome news for those who have grown their superannuation savings to the relevant thresholds, often as a result of contributing their own after-tax funds to provide for their retirement. We also welcome the removal of tax on unrealised gains (which was the most controversial element of the originally drafted legislation) as well as the proposal to index the TSB thresholds.
The deferral of the commencement date by 12 months is sensible and will allow proper industry consultation and Parliamentary debate and ultimately, more certainty for taxpayers.
If you have any questions after reading this article, please do not hesitate to contact your Blaze Acumen advisor.