By Colin Lewis, Head of Strategic Advice, Fitzpatricks Advice Partners
May 2025

The passing of Division 296 – the tax which the government still says only affects 0.5 per cent of the Australian population – now seems a matter of when, not if.

Following the election, the Labor government has won control of the House of Representatives, and in all likelihood the Senate will also be controlled by the government with the help of the Greens.

To pass legislation, including the Div 296 tax, the government will only need the support of the Greens in the Senate whereas previously, it needed the support of the Greens and three independents to pass legislation (without opposition support).

So, given the results, it can be assumed that Div 296 tax will become a reality – it’s inevitable Division 296 will be reintroduced and passed.

Despite the superannuation industry and a great number of prominent Australians voicing their concerns with the way in which this tax will work – especially the inclusion of unrealised capital gains and non-indexation of the $3 million cap – the government seems hell bent on getting this tax through.

In the last Parliament, the crossbench’s concern about these design features was enough to discourage the government from actually putting Div 296 tax to a vote.

Given that historically the government hasn’t been interested in addressing the issues raised with this tax, it’s unlikely the legislation will differ from what was originally introduced, but it’s still possible it could be a brand-new bill.

First, the government must reintroduce the bill to Parliament, then its passage through the Senate will be subject to the parliamentary calendar.

With no backlog in the Senate, the government could push it through quickly, but it’ll depend on what the government wants to prioritise, based on the promises it made in its election campaign.

The government may want it passed sooner rather than later given that it’s already used the revenue from the proposed tax in its budget forecasts.

But the big question is what will the government have to give up, if anything, to the Greens to get the bill through the Senate?

Previously, they wanted four changes, including lowering the threshold to $2 million and removing the limited recourse borrowing arrangement option for SMSFs.

The government hasn’t agreed to reducing the $3 million threshold – the Prime Minister has stated the cap will not be reduced to $2 million as demanded by the Greens.

It will be interesting to see what changes and/or compromises happen from here, if any.

Previously, Division 296 was meant to start on 1 July 2025. The new tax can still be effective from this date even if the legislation is not passed by then, but it’s a matter of how much time the government wants to give people before its implementation.

Hopefully we’ll see the start date deferred.

Division 296 requires a new method of calculating ‘total superannuation balance’ as the new tax hinges on the growth in an individual’s super from one year to the next.

It’s unlikely super funds will be ready to deal with this change before 1 July 2025 and with a lot of large funds unable to do the relevant reporting in 2025-26, there’s impetus to deferring the start date.

Fortunately, the matter isn’t as urgent as it may seem.

For most affected people, remaining in super will continue to be the best option, but it’ll be on a case-by-case basis – depends entirely on an individual’s circumstances.

For people impacted by Division 296 wishing to avoid the tax altogether and who are eligible to withdraw benefits from super (i.e. a condition of release has been met), it’s important to remember that it is their balance at the end of the financial year that matters.

So, with the first year of operation potentially being 2025-2026, it’s an individual’s adjusted total superannuation balance on 30 June 2026 (not 2025) that’s relevant.

An individual with more than $3 million in super at the start of, or during 2025-26, who reduces their balance to $3 million by 30 June 2026 will not be impacted by the tax.

Should the start date be deferred to 1 July 2026, then it’ll be before 30 June 2027.

Be prepared but not alarmed.

Whatever you do, don’t do anything until Div 296 tax is law and you’ve spoken to your adviser.

 

Important Information
The information in this document/article has been prepared by Fitzpatricks Private Wealth Pty Ltd ABN 33 093 667 595 trading as Fitzpatricks Advice Partners, Australian Financial Services Licence (AFSL) No. 247 429. The information is of a general nature only and does not consider the objectives, financial situation, or needs of any person. Before acting on the information, you should consider its appropriateness having regard to your own objectives, financial situation and needs and obtain professional advice.