The Future of Super Tax: Why I’m Concerned

Division 296 – Why I’m Concerned About the Direction of Superannuation Taxation 

In early 2023, the Federal Government proposed the Division 296 tax — a new measure that would apply an additional 15% tax on earnings associated with the portion of a person’s superannuation balance above $3 million. This would bring the total tax on those earnings to 30%, up from the usual 15%. 

The tax is slated to commence from 1 July 2025, but as of now, it has not yet passed into law. The legislation has been introduced to Parliament and passed the House of Representatives, but remains under review in the Senate. While it has been positioned as a targeted reform aimed at very large balances, there are two features of the proposal that I find deeply concerning — both from a fairness and a policy design perspective: 

1. The lack of indexation on the $3 million threshold; and

2. The inclusion of unrealised capital gains in the tax calculation. 

Why the Lack of Indexation Matters 

The $3 million threshold is not indexed to inflation. That means it stays fixed, even as the cost of living and average superannuation balances rise over time. So while it may affect only a small number of people today, many Australians — particularly younger workers who are contributing consistently — could be impacted in future simply due to investment returns and time in the system. 

This approach introduces stealth bracket creep into the super system. Australians who have done the right thing by saving diligently and following the rules could find themselves captured by a tax that was never intended for them, purely because the threshold doesn’t keep pace with inflation. 

Taxing Unrealised Gains – A Fundamental Shift 

Even more concerning is that Division 296 taxes unrealised gains — increases in asset value that haven’t actually been realised through a sale. This breaks from one of the most fundamental principles of Australia’s tax system: that income and capital gains are generally taxed only when realised. 

To show how problematic this is, consider a practical example: 

The $5 Million Property Problem 

Imagine a client with a $5 million commercial property inside their self-managed super fund. Over a financial year, the property is revalued and increases in value by 10% — or $500,000 — on paper. The property isn’t sold, and no income is received from the gain. 

Under Division 296: 

• The excess above the $3 million threshold is $2 million (40% of the balance). 

• 40% of the $500,000 gain — or $200,000 — is deemed taxable. 

• 15% of that = a $30,000 tax bill — with no cash generated to pay it. 

If the property value falls the following year, the earlier gain may reverse — but the tax has already been paid, and there is no refund or carry-forward of losses made before the regime begins. 

This creates serious issues for people with illiquid assets like property, infrastructure, or private equity, and raises questions about how the tax system should treat unrealised wealth. 

A Departure from Sound Tax Policy 

As someone who works closely with clients to build long-term financial security through super, I believe these design flaws in Division 296 set a concerning precedent. 

• Taxing unrealised gains is not only impractical — it risks undermining trust in the system. 

• Freezing the threshold without indexation quietly broadens the tax over time. 

• And both features go against the spirit of fairness, stability, and transparency that has underpinned Australia’s superannuation framework for decades. 

Where Things Stand – And What Comes Next 

While the tax is currently proposed to commence from 1 July 2025, it is not yet law. The legislation remains before the Senate and could still be amended or delayed. 

Importantly, we have the remainder of this financial year to assess the impact, review strategies, and — where appropriate — make arrangements ahead of the proposed start date. We’ll continue monitoring the legislative process closely and will keep clients informed as developments unfold. 

Disclaimer: Any information, financial product or advice provided in this post is general in nature. It does not take into account your needs, financial situation or objectives. Before acting on the advice, you should consider whether it is appropriate to you in light of your needs, financial situation and objectives.