Written by:
Mark Ellem
Head of SMSF Education
Accurium
This article/resource was written prior to the Federal Treasurer’s announced changes to the Division 296 tax measure on 13 October 2025.
Much has been made of the Government’s proposed introduction of Division 296, which would pare back tax concessions for those with superannuation balances over $3 million. The headlines have largely pitched the debate as industry ‘defending the wealthy’ the subtext being that objection to the measure is simply about protecting privileged interests. But this narrative fails to engage with the deeper, principled critique of the policy’s design and, crucially, with why all taxpayers, not just the ‘fortunate few’ should be concerned.
What Division 296 proposes
At its core, Division 296 introduces an additional tax of 15 per cent on the earnings attributable to the proportion of an individual’s total superannuation balance exceeding $3 million. Ostensibly, this targets tax concessions the Government views as overly generous for very large superannuation balances. On the face of it, the policy objective is not controversial. There is widespread acceptance, even within industry, that providing limitless tax concessions for multimillion-dollar retirement accounts is unsustainable public policy. Most industry groups are not, contrary to the caricature, mounting a rearguard action to preserve these concessions at all costs.
The real problem: Flawed implementation
What the industry has strenuously objected to is not the policy objective, but rather the model the Government has chosen to implement it. Division 296 departs, radically, from one of the bedrock principles of our taxation system: that tax is imposed on income that is actually earned, not on unrealised gains or movements in asset values ‘on paper’.
Under the proposed model, ‘earnings’ subject to the additional tax are calculated using the change in the total value of an individual’s superannuation assets -whether or not those gains have been realised, and whether or not the holding is ever actually sold. In effect, this means that taxpayers may be taxed on increases in value that never crystallise, or worse, on values that may later fall just as quickly as they rose. This is a dramatic shift in policy approach that goes far beyond simply closing a perceived loophole.
Unintended consequences and equity concerns
The implementation model for Division 296 is not just a technical quibble, it matters because it creates new inequities and administrative burdens. For example:
- Taxpayers could face significant liabilities as a result of asset revaluations, even if the underlying assets are illiquid or the “gains” are only notional.
- The model is indifferent to volatility. An individual’s balance might rise (and be taxed) one year, only to fall the next – with no prospect of a tax refund for the subsequent drop.
- It sets a precedent for taxing ‘wealth’ based on valuations rather than actual economic benefit.
This is a marked departure from fundamental tax principles, and one that could have far-reaching implications if allowed to stand. Most concerningly, if such a precedent is accepted for superannuation, what is stopping the Government from adopting it elsewhere in the tax system in future years?
For example, and at the risk of providing some ideas, what if the Government decided to pare back tax concessions enjoyed by those who had negative geared property portfolios, including access to the 50% general CGT discount? Rather than making any change to the negative gearing rules or removing the 50% CGT discount, why not just add a new tax for those that have an investment property portfolio of more than say $3 million. And let’s impose that tax on the ‘property portfolio earnings’ which is based on the movement in value of the portfolio from the end of one year to the end of the next year? But, that would never happen……….would it?
It’s about principles, not privilege
The mainstream debate has too often settled on the line: ‘Well, it only affects the wealthy, they can afford it, so why should we care?.’ This misses the point entirely. All taxpayers have a stake in the integrity and logic of the tax system. Accepting a measure that abandons precedents and fair taxation principles, as Division 296 does, erodes protections for everyone. The tax system should operate consistently and equitably, without arbitrary departures for the sake of expediency.
A better way forward
There are alternative models that could pare back tax concessions for large superannuation balances more fairly and efficiently -namely, by taxing actual earnings or realised capital gains, as with most other aspects of our tax system.
Industry’s objection, then, is not to the progressive intent of the policy, but to the careless way it achieves that aim. It is a call for consistency, fairness and adherence to established tax principles. Today, the target may be a tiny minority with large superannuation balances, but the ramifications of abandoning tax norms could reach far wider, and far deeper, than many realise.
Conclusion
The Division 296 debate is not just a story of protecting the wealthy. It is fundamentally about standing up for fair and principled taxation. All taxpayers should pay close attention. If we allow expedient departures from core tax principles here, who’s to say where or when those changes stop? There’s far more at stake than a line item in the nation’s revenue accounts.
For my other blogs on Division 296:
