The Division 296 Conversations Nobody Is Having But Should Be

Patricia is 71. She spent the better part of thirty years building a superannuation balance that, by the time her husband Robert died in May, sat at just under $2.4 million. That felt comfortable, well below the $3 million threshold she’d been hearing about. Division 296, as far as she understood it, was someone else’s problem.

Then Robert’s reversionary pension, $1.85 million, automatically continued to her.

By 30 June 2026, Patricia’s Total Super Balance was $4.25 million. She received her first Division 296 assessment in early 2028. She called us to ask what it was.

Hers is not an unusual story. It is, in fact, one of the most common pathways into Division 296 that we are seeing and one of the least anticipated. The people it catches are not those who spent their careers accumulating extraordinary wealth. They are people who lived prudently, saved consistently, and found themselves above a threshold they never expected to reach because of a moment they would have given anything to avoid.

Division 296 has now been operating for several months. The initial flurry of explanatory content has largely settled. What we want to discuss in this piece are the deeper questions, the ones that don’t appear in a summary of the legislation but matter enormously to the people they affect.

If you’re new to Division 296, read our guide to how the tax works, who it affects and the key considerations for super balances above $3 million. Read Division 296 Starts in One Week.

The Reversionary Pension Surprise

The most underappreciated Division 296 risk for couples is not one partner’s balance crossing $3 million. It is what happens to the other partner’s balance when the first one dies.

When a super pension reverts automatically to a surviving spouse, that balance becomes part of the survivor’s Total Super Balance immediately. Not after twelve months, as applies for certain other super rules. Immediately.

A couple where each partner has $2.5 million in super is not a Division 296 household while both are alive. But the day one partner dies and their pension reverts to the other, the survivor’s TSB becomes $5 million. They are now subject to the tax, on a balance they did not accumulate for themselves, in circumstances that leave little room for strategic adjustment.

The questions worth asking now, while both partners are alive and options exist:

• Has your super balance been modelled on the assumption that one partner predeceases the other? If not, it should be. The combined TSB on the death of the first partner is often materially higher than either individual balance suggests.
• Is a reversionary pension the right structure for your account-based pension? Reversionary pensions are administratively simple and provide continuity of income, but they create immediate TSB attribution. In some circumstances, a binding death benefit nomination may provide more flexibility. This is a decision with significant trade-offs and is not right for everyone, but it warrants a conversation.
• Would a surviving spouse be able to manage their Division 296 liability? If the assessment would represent a genuine cashflow difficulty, that is information that should inform decisions made today.

Have you considered what would happen to your combined super balance if one partner passed away? This is something a Hewison adviser can model with you as part of your broader superannuation and estate planning strategy. Start a conversation today.

The Estate Planning Mismatch Most People Haven’t Noticed

Division 296 has exposed a tension in estate planning that many people have not yet confronted.

Superannuation, by design, does not form part of your estate. It is directed by your fund’s trustee, guided by binding death benefit nominations or reversionary pension designations. Most people structure these nominations to direct super to their spouse for good reasons, including tax efficiency, continuity of income, and simplicity.

The rest of their estate including property, investment portfolios, cash, personal assets go to whoever their Will provides for.

Here is the problem Division 296 creates: your tax liability is personal. When you die, a Division 296 assessment will be issued to your estate. Your executor must pay it from estate assets. They cannot elect for it to be paid from your superannuation, that election belongs to you personally, and it lapses at death.

So, consider this scenario. A person dies with $5 million in super, directed via a reversionary pension to their spouse. Their estate of $2 million in assets is directed by their Will to children from a prior marriage. The Division 296 tax bill falls on the estate.

The children receive less. The spouse receives all the super. The tax was generated by the super, but it is paid by the estate.

This is not necessarily wrong — outcomes like this may be entirely consistent with what the person intended. But in many cases, it will not have been considered at all. And for someone with a $5 million super balance in a year with reasonable investment returns, the Division 296 liability for that year alone could be in the range of $20,000–$40,000 or more.

The practical implications:

• Review your Will and your death benefit nominations together, not separately. The interaction between them, in the context of Division 296, may produce outcomes that were never intended.
• Consider whether your testamentary trust structure adequately accounts for a potential Division 296 liability falling on the estate. An adviser working alongside your estate planning solicitor is well placed to identify and address these gaps.
• If you have a blended family, or want to treat different beneficiaries differently, explicit consideration of where the Division 296 liability will land is not optional — it is essential.

“Should I Just Get Below $3 Million?” — The Question That Deserves a Better Answer

In the months since Division 296 became law, we have fielded many variations of the same question: should I withdraw enough from super to get below $3 million and just avoid the whole thing?

It is a reasonable instinct. The answer, in almost every case, is: it depends — and the analysis is more complex than it first appears.

• Where does the money go? Super exists within a concessionally taxed environment. Money withdrawn and held personally is subject to your marginal income tax rate on earnings. For a person earning significant income from other sources, investment income generated outside super may attract tax at 32.5%, 37%, or 45% plus Medicare. Division 296 at 15% of a proportion of earnings is, for many people, cheaper than the alternative.
• Asset protection. Superannuation enjoys significant protection in bankruptcy and legal proceedings that personal assets do not. For business owners or those in professional practices, the asset protection characteristics of super are a genuine consideration.
• Contribution restrictions. Money withdrawn from super is not necessarily easy to get back in. Drawing down a balance now removes optionality for the future.
• The effective rate matters, not the headline rate. Division 296 applies to a proportion of earnings — not all earnings. For someone with $3.5 million in super, only 14.3% of their earnings are subject to the 15% Division 296 rate. Their effective additional tax rate is approximately 2.1% of total earnings. That is a very different number from 15%.
• Sequencing matters. Even where withdrawing from super ultimately makes sense, acting without considering tax on realised gains, pension minimums, or the interplay with other structures can create problems it was intended to solve.

The right answer for some people will be to withdraw from super. The right answer for others will be to accept Division 296 as a modest cost of a well-structured retirement. The wrong answer, in almost every case, is to act quickly without modelling the alternatives properly.

For SMSF trustees, there’s another important Division 296 decision to consider. Our previous article explores the once-only capital gains relief election, including what it could mean for SMSFs holding assets with significant unrealised gains. Read: Your SMSF, Your Assets, One Decision.

Asset Location — A Conversation That Is Now Worth Having

For high-net-worth individuals and families with assets both inside and outside superannuation, Division 296 reopens a question that had largely been settled: which assets belong where?

Assets that generate high levels of current income — high-yield equities, fixed income, cash deposits — contribute more to Division 296 earnings in the year they are held. For members well above the $3 million threshold, there may be merit in holding some income-generating assets outside super (in a trust, company, or personal name) and retaining growth-oriented assets inside, where unrealised gains do not attract Division 296 until the asset is sold.

This requires weighing:

• The tax rates applicable to income and gains in the alternative structure
• The transaction costs and tax triggered by repositioning assets
• The estate planning and asset protection implications of each structure
• The longer-term trajectory of the member’s TSB

For many people, the conclusion will be that the benefit of asset relocation does not justify the disruption. For some — particularly those with very large balances and significant income-producing assets — it may warrant genuine consideration.

This is a conversation that benefits from an adviser who can look across the whole picture: super, personal investments, trusts, and the family’s long-term goals.

One More Thing About Defined Benefits

If you or your spouse holds a defined benefit entitlement — through a government employer, a corporate scheme, or a professional superannuation fund — Division 296 still applies, but the calculation is different and in some cases significantly more complex.

The value of a defined benefit is no longer simply 16 times the annual pension. New actuarial methods are being applied, which in many cases reduce the assessed value of lifetime pensions. For some members, this may mean their TSB falls as a result of the recalculation — potentially removing them from Division 296 entirely.

If you or your spouse have a defined benefit, contact your fund directly. Your financial adviser and the fund should be working from the same figures.

What Considered Planning Actually Looks Like

Division 296 is now real. The assessments will begin arriving in 2027 and 2028. The people who will be best placed are not those who made dramatic last-minute changes — they are those who spent the intervening time understanding their position, modelling the scenarios, and making deliberate decisions.

At Hewison Private Wealth, the conversations we are having with clients around Division 296 are not just about the tax itself. They are about estate planning that accounts for where a tax liability will land. They are about super structures that reflect what actually happens when one partner dies. They are about whether holding assets inside or outside super still makes sense for the specific shape of a family’s wealth.

These are not quick conversations. But they are important ones.

If you have not yet had them — or if you are not sure whether your current adviser has the breadth to work across super, estate planning, and broader wealth structures simultaneously — we would be glad to talk.

Talk to our Team

Continue Exploring Division 296

Division 296 Starts in One Week – Understand how the tax works and what it could mean for your super. Read the article.

Your SMSF, Your Assets, One Decision – Understand the capital gains relief election available to SMSF trustees. Read the article.

This article is general in nature and does not constitute personal financial advice. It does not take into account your individual objectives, financial situation or needs. You should consider whether the information is appropriate to your circumstances and seek professional advice before acting.

Hewison & Associates Pty Ltd T/A Hewison Private Wealth ABN 51 006 082 257 | AFSL 227185