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Division 296 Backflip: Government Retreats on Controversial Super Tax
By Patricia Montagne Longue
14 October 2025
In a significant policy reversal, the Australian Government has announced major changes to its proposed Division 296 superannuation tax, backing down from some of the most contentious elements of the legislation. The move comes after months of mounting pressure from industry groups, political opponents, and everyday Australians concerned about the fairness and feasibility of the original proposal.
What Was Division 296?
Division 296 was introduced as part of the government’s broader effort to reform superannuation tax concessions. The original proposal aimed to impose an additional 15% tax on earnings from superannuation balances exceeding $3 million, effectively increasing the tax rate on those earnings to 30%.
However, two aspects of the policy drew widespread criticism:
- Taxing unrealised capital gains, which would have required individuals to pay tax on paper profits that hadn’t been realised.
- Lack of indexation on the $3 million threshold, meaning more Australians could be caught by the tax over time due to inflation and compounding.
The Backflip: What’s Changed?
On October 13, 2025, Treasurer Jim Chalmers announced a suite of changes to the Division 296 proposal, including:
- Scrapping the tax on unrealised gains – Earnings will now only be taxed when they are realised, addressing concerns about liquidity and fairness.
- Introducing indexation to the $3 million threshold – This change aims to prevent “bracket creep” and ensure the tax targets only the wealthiest superannuation holders.
- New tiered thresholds:
30% tax on earnings from balances between $3 million and $10 million.
40% tax on earnings from balances above $10 million. - Delayed implementation – The start date has been pushed back by one year to 1 July 2026.
- Consultation on earnings calculation – Treasury will work with industry stakeholders to refine how earnings are calculated and attributed to individual fund members.
Why the Change?
The government’s retreat appears to be a response to:
- Industry backlash over the complexity and fairness of taxing unrealised gains.
- Political pressure from the opposition and within Labor’s own ranks.
- Concerns about aspiration and intergenerational equity, with critics arguing the policy would penalise younger Australians and those saving diligently for retirement.
Treasurer Chalmers defended the changes, stating the government had “found another way to satisfy the same objectives” and that the adjustments reflect a government that “takes feedback seriously” and works “in a methodical and considered way.”
Reactions from the Sector
The response to the backflip has been mixed:
- Financial advisers and industry leaders welcomed the changes, calling them a return to common sense.
- Opposition leaders labelled the retreat “publicly humiliating,” arguing the original policy was flawed from the outset.
- Superannuation funds acknowledged the increased compliance burden but committed to working with Treasury to implement the changes smoothly.
What This Means for You
If you have a superannuation balance approaching or exceeding $3 million, here’s what you need to know:
- You won’t be taxed on unrealised gains.
- The $3 million threshold will now be indexed, reducing the risk of being unfairly caught by inflation.
- The new tax regime won’t begin until 1 July 2026, giving you more time to plan.
- If your balance exceeds $10 million, a higher tax rate of 40% will apply to earnings above that level.
Final Thoughts
The Division 296 backflip is a clear example of how public and industry pressure can influence policy. While the government remains committed to reforming superannuation tax concessions, it has now opted for a more balanced approach that aims to preserve fairness without undermining confidence in the retirement system.
As always, if you’re unsure how these changes affect your financial future, it’s important to seek the right advice. Our team at Qubed Advisory can help you review your super strategy to ensure it remains aligned with your goals.
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