Division 296: A Penalty on Prudence

The Australian Government’s proposed Division 296 is framed as a reform to “enhance fairness” in the superannuation system — a policy designed to limit the concessional treatment of those with total superannuation balances exceeding $3 million.

Beneath this language of equity, however, lies a more consequential shift in philosophy. Division 296 does not merely adjust marginal tax rates; it re-casts the very purpose of superannuation itself. What was once a system built to reward foresight, discipline, and long-term saving is being reshaped into a mechanism for wealth redistribution. In doing so, the measure risks undermining the trust and confidence upon which Australia’s retirement framework has long depended.

A New Era of Superannuation Taxation

Under the Federal Government’s revised Division 296 proposal, announced in October 2025, an additional tax will apply to the realised earnings of individuals whose Total Superannuation Balance (TSB) exceeds $3 million.

The new framework introduces two progressive tiers designed to increase the overall tax burden on high-balance superannuation members:

• Tier 1 – Balances between $3 million and $10 million

  An additional 15% Division 296 tax applies to the portion of earnings attributable to this band of the balance.

  When combined with the existing 15% fund tax, this results in a total effective tax rate of 30% on those earnings.

  
  

• Tier 2 – Balances above $10 million

  A higher 25% Division 296 tax applies to earnings attributable to balances exceeding $10 million.

  Together with the standard 15% fund tax, this produces a total effective rate of 40% on that portion of income.

Both thresholds — $3 million and $10 million — will be indexed to the Consumer Price Index (CPI) in increments of $150,000 and $500,000 respectively. The measure is scheduled to commence on 1 July 2026, with the first assessments to be issued in the 2027–28 financial year.

At first glance, these adjustments may appear modest, even rational. Yet their implications extend far beyond arithmetic. This reform signifies a deeper structural and philosophical shift: superannuation is no longer treated purely as a vehicle for self-funded retirement, but is being repositioned as an instrument of redistribution — a shift that raises profound questions about the future integrity of the system itself.

The Fairness Paradox

Proponents of Division 296 often contend that “no one needs $10 million in super to retire comfortably.” That may be true — but it entirely misses the essence of the issue.

Those who have accumulated substantial balances have done so under a framework that expressly encouraged discipline, deferred gratification, and long-term investment. They paid tax on contributions, tax on fund earnings, and frequently accepted significant investment risk — all in pursuit of retirement self-sufficiency rather than reliance on government support.

To retrospectively label these savers as “over-benefited” is to suggest that success within the rules is somehow a policy failure requiring correction. Such reasoning converts fairness from a principle of justice into a political slogan — one that justifies selective penalty rather than consistent law.

If fairness is to have meaning in a stable tax system, it must rest on certainty, transparency, and respect for those who played by the rules. Anything less erodes confidence not only in the superannuation framework but in the integrity of policy itself.

Unintended Consequences

In my view, while Division 296 may appear narrowly targeted, its influence will extend well beyond the small cohort it is designed to affect. The measure may alter behaviour, unsettle established expectations, and introduce new administrative burdens — all of which could gradually reshape the character of Australia’s superannuation system.

When individuals perceive that long-term prudence is being taxed more heavily, they may begin to reassess the value of maintaining significant balances within the superannuation environment. Over time, this could encourage earlier withdrawals or a shift of investment capital into structures outside the system — a response that, collectively, may diminish Australia’s pool of long-term retirement savings.

For self-managed super funds, the concern is not ideological but practical. Many SMSFs hold assets such as property or unlisted investments that cannot easily be liquidated. Meeting an additional tax liability in such circumstances may necessitate asset sales at inopportune times, potentially undoing years of deliberate and disciplined planning.

There is also the question of compliance. The shift to a realised-earnings model will require more detailed reporting, complex attribution of member-level earnings, and frequent reassessment of indexed thresholds. Each layer of complexity increases administrative cost and the likelihood of inadvertent error — eroding the simplicity and confidence that the system was intended to foster.

Ultimately, my concern is not about the rate of tax but about the erosion of trust. Superannuation succeeds because Australians believe the rules are stable and that diligence will be rewarded. Each time those rules are adjusted retrospectively or unpredictably, confidence in the integrity of the framework weakens. In that sense, Division 296 may have consequences that reach far beyond the Treasury estimates — not only changing how people manage their super, but how they view the promise of security it was meant to uphold.

The Bigger Issue — Trust

In my experience, superannuation endures not because it is compulsory, but because people believe in its consistency. It relies on trust — the quiet confidence that the rules will remain stable and that the promises made today will still hold tomorrow. Each time the framework is altered — whether through changes to contribution caps, transfer balance limits, or now the creation of a new wealth-based tier — that confidence weakens a little more.

Once trust begins to erode, the entire system becomes fragile. Savers start to question whether their prudence will still be valued, or whether success will again be redefined as excess. The uncomfortable question that follows — if $3 million is considered too much today, what might be considered excessive tomorrow? — captures the deeper unease that Division 296 has introduced.

Conclusion

In the end, the debate surrounding Division 296 is not simply about tax rates or thresholds; it is about the kind of relationship we want between government and citizen — between policy and principle. Superannuation has always stood as a covenant: if Australians save diligently and play by the rules, the system will protect and reward that discipline.

Division 296 challenges that understanding. While the intention to preserve fairness is legitimate, the method risks unsettling the very confidence that allows superannuation to function. A retirement framework cannot thrive on constant revision. It requires predictability, respect for precedent, and a steady hand that distinguishes equity from expedience.

My concern is not with the pursuit of fairness itself, but with the growing tendency to equate fairness with redistribution. The true measure of a just system lies not in how heavily it taxes success, but in how faithfully it honours the promises on which people have built their futures.

Superannuation remains one of Australia’s greatest policy achievements. It deserves reform that strengthens its foundations, not change that casts doubt on them.

Author’s Note

This commentary represents my personal professional opinion only and should not be relied upon as tax or financial advice. Readers should seek independent, tailored advice before acting on any views expressed above.