There’s a new kid on the superannuation block, and it’s not here to make your retirement dreams any sweeter. It’s called Division 296. It’s a tax… on unrealised capital gains. Yes, you heard that right. The Australian Government has decided that if your superannuation balance grows on paper, even if you haven’t sold a thing, they’re going to tax it. This new rule might sound like a deal-breaker, but I’m here to tell you it’s not. Superannuation, even with this absurdity baked in, still reigns supreme as the most tax-effective investment vehicle in Australia.
Before I show you the numbers that prove this beyond a shadow of a doubt, let’s get a few basics down in plain English.
Super in Two Flavours: Accumulation vs Pension
Accumulation Phase: This is your super’s working life. You’re still adding to it, your employer is making contributions, and the fund is investing. While it grows, the earnings are taxed at just 15%, and realised capital gains on assets held more than a year are effectively taxed at 10%.
Pension Phase: Available from age 60. The earnings become tax-free — but only on the portion under the Transfer Balance Cap (currently $1.9 million). The excess remains in accumulation and is proportionally taxed at 15%.
The Two Big Extra Taxes for the Hard Working and Smart Investing
Division 293 Tax: If your taxable income + concessional contributions exceed $250,000, an extra 15% tax is applied to some or all of your concessional contributions. It’s effectively a double-whack on the money you put into super. It sucks, but still better than your marginal tax rate at this level.
Division 296 Tax: Starting from 1 July 2025, if your total super balance exceeds $3 million, you’ll cop an additional 15% tax on a proportional share of your superannuation earnings, including unrealised capital gains. It doesn’t matter whether you sell or not — if your fund’s assets appreciate in value, you get slugged!
Example: $3.5 Million Fund Growing at 10% (5% Income + 5% Capital Growth)
Let’s look at how much tax you’d pay under different structures:
Scenario A: Held in Super — 100% Accumulation Phase
- Fund earnings: $350,000
- Fund tax at 15%: $52,500
- Div 293 tax (on $30k concessional contribution with $240k net income): $3,000
- Div 296 tax: $11,592
- Total tax: $67,092 (effective rate: 19.17%)
Scenario B: Held in Super — 100% Pension Phase
- Fund earnings: $350,000
- Portion in pension phase: $1.9m / $3.5m = 54.29% (tax-free)
- Portion in accumulation: 45.71% × $350,000 = $159,985 taxed at 15% = $23,998
- Div 293 tax (on $30k concessional contribution with $240k net income): $3,000
- Div 296 tax: $11,592
- Total tax: $38,590 (effective rate: 11.03%)
Scenario C: Held Personally (at 47% marginal tax rate)
- Income tax: $82,250
- CGT tax (after 50% discount): $41,125
- Total tax: $123,375 (effective rate: 35.25%)
Scenario D: Held in Undistributed Trust
- Tax on income and capital gain: $164,500 (effective rate: 47%)
Scenario E: Held in Small Company (25% tax rate)
- Income tax: $43,750
- CGT tax (no discount): $43,750
- Total tax: $87,500 (effective rate: 25%)
The Verdict: Even with Div 296, Super is Still a Weapon
Taxing unrealised capital gains is un-Australian. It’s anti-logic. It punishes those who’ve saved, exposes retirees to liquidity risk, and opens the door to more retrospective wealth taxes. But let’s not throw the baby out with the bureaucratic bathwater.
Even with Div 296 in full swing, superannuation — especially when in pension phase — continues to provide tax outcomes that annihilate every other ownership structure.
So, What Should You Do?
If you’ve got a high balance or high income, you shouldn’t rage-quit super. You should optimise around it:
- Keep maximising contributions — even with these new taxes, the tax is still better than non-super investing.
- Get to pension phase as soon as you can and use your Transfer Balance Cap wisely.
- Use non-super vehicles (companies, trusts) only when you’ve hit contribution limits or need short-term flexibility or access.
Div 296 sucks. It’s clunky, it’s complex, and it’s an affront to rational tax policy. But until Canberra loses its nerve and goes full Venezuela, super remains the smartest, leanest, most efficient way to invest for your future.
Anyone who tells you otherwise is probably just trying to flog you something outside super.