Superannuation is still the most tax-effective investment vehicle and, for most people, the impact of Division 296 tax will be minimal.
The changes announced in the federal budget, and the amendments since, have dominated headlines in the past few months, but people shouldn’t forget the so-called $3 million super tax (Division 296 tax) which came into effect on July 1.
We’ve been having a number of discussions with clients about Division 296, which applies extra tax to large superannuation balances, considering what changes they should – or shouldn’t – make to their super arrangements.
The new tax affects the investment earnings of super balances above $3 million, with two “tiers” of extra tax – one for earnings over $3 million and another for earnings beyond $10 million.
The $3 million-plus threshold incurs an extra 15 per cent tax, while the $10 million-plus category attracts an extra 10 per cent on top of that.
Realised capital gains on assets that have been held for more than 12 months in super will still receive a discount of one-third.
The rules are detailed and complex, taking into account a person’s total super balance (across all accounts if they have more than one), measuring it during the year, determining realised capital gains and addressing related issues.
There’s also the consideration for capital gains that a super fund may choose to reset the cost base of its assets at June 30, 2026, so only gains accruing after that date are subject to the additional Division 296 tax.
The main point we are making to clients is that super is still the most tax-effective investment vehicle and, for most people, the impact of the new tax will be minimal.
Super still a winning structure
Given the budget changes, that mean capital gains outside of super will be taxed at a minimum of 30 per cent from July 1 next year; trusts are to be taxed at 30 per cent; and, with companies already taxed at 30 per cent, our view is that super is the ideal investment vehicle for individuals up to the pension limit ($2.1 million).
It remains a very tax effective choice for those with up to $3 million in super and still tax effective for balances up to $10 million.
With this in mind, whether investment wealth should be moved from super to another investment vehicle will depend on a range of factors. These include:
- The size of total super assets for each person. A complication here is assigning a value to defined benefit funds where an individual also has one of those
- The impact of the extra Division 296 tax, but often this is minor.
- Whether it is even possible to move the money, given that super is locked away until a condition of release is met
- The age of the person
- Whether they have a dependent, such as a spouse, that a death benefit can be paid to tax-free, or, if not, what the death benefits tax will be if paid to non-dependents
- Whether they already have other structures in place that could better house their investments
- Asset protection issues
- Estate planning issues
As this list suggests, there’s a lot to think about, and it can be difficult to determine whether super arrangements for those with balances below the $10 million threshold should be rearranged due to Division 296.
Who should consider moving money out of super?
Generally, we find there are better alternatives to incurring a 40 per cent effective tax rate on earnings on super account balances over $10 million and for such large balances we would often recommend a rearrangement.
This could take the form of reducing the super balance and loaning the money to a personal investment company for it to invest.
For older clients whose spouse has already died, and their super will be left to the next generation who might incur a large death benefits tax, that tax can be reduced by taking money from super and investing it elsewhere.
One thing is for certain though: given these super changes and the changes in the 2026 budget, wealthy individuals and families should critically review their structures.
The result may be that nothing should be changed, but knowing that with certainty is far better than blindly doing nothing.
This article originally appeared as part of Michael Hutton’s regular column in the Australian Financial Review on 7 October 2026.