Division 296 and The End of Unconstrained Super
A practical look at how Division 296 will reshape superannuation strategies for high-balance clients.
Understand the key impacts, who is affected, and how advisers should respond.
Overview:
CPD Hours: 1.5
Estimated Time: 2 Hours
“Division 296” represents a major shift in how superannuation is taxed in Australia, introducing higher marginal tax rates for large balances and challenging the long-standing assumption that super is always the most tax-efficient structure. From 1 July 2026, this change forces advisers to rethink how wealth is structured, not just how it is invested.
Why This Changes the Game
Superannuation has traditionally operated as a concessional, relatively simple tax environment regardless of balance size. Division 296 introduces a progressive tax overlay on earnings above certain thresholds, fundamentally altering its long-term efficiency for high-balance clients.
How Division 296 Works
The legislation applies additional tax to earnings linked to large super balances:
- Balances above $3 million attract an additional 15% tax on earnings
- Balances above $10 million attract a further 10% tax on earnings
- These taxes are applied on top of existing super taxes, increasing effective marginal rates
- The tax is calculated at an individual level based on earnings attributable to excess balances
Who It Impacts
While initially affecting a small group, the long-term impact is broader:
- High-net-worth individuals already above $3 million
- Clients approaching the threshold through growth or contributions
- Younger accumulators likely to exceed the threshold over time
- Defined benefit members with large notional balances
The Real Impact Over Time
Even modest increases in tax can materially erode long-term outcomes:
- Higher marginal tax reduces the compounding efficiency of super
- Liquidity pressure may arise when tax is payable without corresponding cash flow
- The tax advantage of super narrows relative to alternative structures at higher balances
- Defined benefit members with large notional balances
Strategic Response for Advisers
Division 296 shifts the focus beyond investment selection to where assets are held. Superannuation remains a highly effective core structure, but it is no longer universally optimal for incremental capital once balances reach certain levels. Advisers now need to actively weigh super against alternative structures as balances grow, introducing a more deliberate asset location strategy alongside traditional asset allocation decisions.
Why Structure Now Matters More Than Ever
There are no simple fixes to Division 296, and many reactive strategies can create unintended consequences. Withdrawing funds, selling assets, or holding excess cash may reduce exposure in the short term but can undermine long-term outcomes. Instead, the focus needs to shift toward proactive, forward-looking structuring that balances tax efficiency, liquidity, and estate outcomes. This often involves using complementary structures alongside superannuation, rather than relying on a single solution.
Key Takeaway
Division 296 doesn’t remove the value of superannuation, but it changes how it should be used within a broader strategy. As balances grow, the marginal benefit declines, and a multi-structure approach becomes more important. The strongest outcomes will come from advisers who plan early, model long-term impacts, and position clients across a mix of structures to maintain flexibility and tax efficiency over time.