Q+A: How Division 296 changes the super equation

Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics and more. I'm Sean Aylmer. For Australians with large super fund balances, the rules of the game are changing. Division 296 imposes an additional tax on earnings associated with super balances above $3 million. But the federal budget this year has also changed the landscape for those considering withdrawals from super. This episode was recorded at Class Ignite 2026. Proud supporters of this podcast. As always, remember to seek professional advice tailored to your circumstances before making investment decisions. Meg Heffron is Managing Director of Heffron and one of Australia's leading experts on self-managed super funds. Meg, welcome to Fear and Greed Q&A. Thanks, Sean. Give us a 101 on Div 296 and the journey it was on and where we've actually landed.

You've got to love the name for a start, haven't you? Why is it that? Well, because it's in Division 296 of the Tax Act. And in the absence of a better name, we've just started calling it by its section in the Tax Act. So it's a new tax, started from the 1st of July 26, and it's applied to anybody who's got more than $3 million in super. And it's an extra tax of up to 25% for people who've got even more, got more than $10 million in super. It's applied to a portion of their earnings in their super fund. So it's a personal tax, but you work it out based on how much their super fund has earned. And you mentioned the journey. It has been a very contentious journey. So once upon a time, it was going to be applied to basically the growth in your super account. So you'd look at how much you had in super at the start. You'd look at how much you had at the end of the year. You'd take off money that had been put in as a contribution and pretty much everything else was what would be subject to the tax and in smsfs in particular there was a huge outcry about that because and lots of your listeners will have heard the outcry about taxing unrealized gains because of course in super a lot of what drives growth in your account balance isn't dividends and rents it's it's growth in the value of your assets so you're going to be hit with a tax on money you didn't really have yet So fortunately that journey switched and it's now earnings income in a more conventional sense that we might understand for tax purposes. So realised capital gains and rent, interest, dividends, and it's an extra tax on that income for people who meet the balance thresholds.

Does it make it much less attractive to invest in super above $3 million or even above $2 million when you're on that journey towards it?

Yeah, so look, above $2 million, no. Above $3 million, it makes it less attractive. But it's interesting, whenever you talk about less versus more, you have to think about what you'd compare it to. So you will pay more tax than you used to if you have, let's say, $4 million in super. However, would you pay more tax if you took the million dollars that you're over $3 million and invested it somewhere else? And look, the modelling I've done suggests most of the time, for most people, there's not a great spot you could house