Earlier this year, we unpacked the government’s Division 296 proposal and what it could mean for super balances over $3 million. This article picks up where we left off with some big updates that completely change the conversation.
After months of pushback from industry groups, super fund trustees, and everyday Australians, the Treasurer has finally announced major changes to the proposed Division 296 legislation. These revisions reshape how the tax will work including a delay in start date, new thresholds, and the removal of the unrealised capital gains element that caused so much concern.
Let’s take a look at what’s changed, what stays the same, and what it could all mean for you.
What’s New in the Division 296 Update?
Under the updated proposal, the Division 296 tax will now:
- Apply to individuals with total super balances above $3 million, but at tiered rates.
- Introduce two caps:
- $3 million to $10 million: earnings in this range will be taxed at 30% (up from 15%).
- Above $10 million: earnings on balances beyond this will be taxed at 40%.
- Both thresholds will be indexed — meaning they’ll increase over time to account for inflation.
- Most importantly, the earnings calculation will now only apply to realised gains (profits actually made when an asset is sold), not unrealised or “paper” gains.
The start date has also been delayed to 1 July 2026, giving super fund members and trustees more time to plan.
Why the Removal of Unrealised Capital Gains Matters
Previously, taxing unrealised gains meant super members could owe tax on assets that had increased in paper value but weren’t sold, creating cash-flow strain and liquidity risks, especially for funds holding property or private investments.
By removing this, the Government effectively restores fairness and flexibility.
Super funds will now be taxed only when income or capital gains are realised, reducing pressure to liquidate assets prematurely.
For high-balance investors, that means:
- Fewer surprise tax bills.
- More control over the timing of asset sales.
Greater alignment between real profits and tax obligations.
How the Division 296 Rules Affect $3 Million Super Balances
Roughly 80,000 Australians currently hold super balances above $3 million and that figure will grow. The new rules particularly affect Self-Managed Super Fund (SMSF) members whose portfolios include illiquid assets.
Here’s the short version:
- $3–10 million: 30% tax on realised gains.
- Above $10 million: 40% tax on realised gains.
- Both thresholds indexed to inflation to prevent bracket creep.
- Losses can carry forward to offset future taxable gains.
These changes create a clearer, more predictable environment for high-net-worth Australians, one that rewards strategic decision-making over reactive adjustments. With the updated rules, the removal of unrealised gains should ease some of the earlier fears around cash flow and forced asset sales.
Implications for Superannuation Investors
Even with these improvements, it’s still a big shift in the super landscape. Here’s what it could mean:
- Higher effective tax rates: Those with large balances will see reduced after-tax returns.
- More strategic planning: Super trustees will need to monitor when and how they realise gains to manage their tax exposure.
- Less pressure on liquidity: Removing unrealised gains from the formula should prevent cashflow issues for funds holding illiquid assets like property.
For business owners and investors, this translates to more stable long-term planning within their super structures.
Those approaching retirement or succession may find the next 12 months crucial for:
- Reviewing capital gains timing.
- Reassessing contribution strategies.
- Aligning estate and retirement planning with Division 296 realities.
In essence, Australia’s wealthiest super members now have a window to rethink how value is created and realised, not just how it’s taxed.
Strategic Opportunities and What Should You Do If You’re Affected?
The removal of unrealised gains is welcome news, but the broader framework still demands proactive strategy. Here’s what you can do right now:
- Review liquidity plans: Ensure sufficient cash flow to cover realised-gain tax events.
- Check your balance: If your super is hovering around $3 million or higher, keep an eye on how close you’re getting to the new thresholds.
- Time asset disposals: Consider market cycles and fund cash needs before selling.
- Diversify within super: Blending liquid and illiquid assets helps manage future obligations.
- Review your SMSF strategy: With the new start date of 1 July 2026, there’s breathing room to review asset allocations, liquidity, and timing for any future transactions.
- Leverage the 2026 start date: Use the lead-in period to rebalance portfolios and reduce exposure.
- Plan ahead: Talk to Wardle Partners Accountants & Advisors about strategies to manage realised gains, minimise exposure, and optimise your fund’s tax position.
While the sting has softened, this proposal still changes how Australia’s wealthiest super members manage their investments.
Still to Come
- Detailed legislation is still being refined and is yet to pass Parliament.
- Treasury has indicated that more technical details on how earnings are calculated will be released soon.
- Final administrative processes (reporting, timing, and compliance) will follow once the bill progresses.
FAQs on Unrealised Capital Gains
What are “unrealised gains”?
They’re increases in asset value before a sale, for instance, when your property rises in value but you haven’t sold it. Under the updated rules, these gains aren’t taxed.
Who does Division 296 affect?
Australians with total super balances exceeding $3 million, with higher tax tiers applying above $10 million.
When does the new system begin?
The proposed start date is 1 July 2026, pending final legislation.
Will thresholds adjust over time?
Yes — both the $3 million and $10 million caps are indexed to inflation.
What should SMSF trustees do now?
Stay informed, review portfolio liquidity, and seek professional advice to prepare ahead of the 2026 implementation.
Conclusion
In summary, the shift in the regulation of unrealised capital gains under the proposed Division 296 and the introduction of the “$3 million super cap” mark a significant change in how high-balance superannuation accounts are taxed. Previously, the potential inclusion of unrealised capital gains would have created liquidity risks and uncertainty.
With the updated policy direction focusing exclusively on realised capital gains, the tax framework becomes considerably more manageable.
With careful planning you can reduce exposure, optimise timing of transactions and structure your assets to anticipate the legislative changes rather than react to them.
Ultimately, the removal of unrealised gains from the tax base, the indexing of thresholds and the move toward taxed realised outcomes shift the conversation from uncertainty to opportunity. Acting now gives you and your advisors the chance to position your portfolio thoughtfully ahead of the change.
Schedule a strategy review with Wardle Partners Accountants & Advisors to check if super balance is approaching or above the $3 million mark.
