Proactive action for the new Division 296 $3M super cap
Why SMSF members should review Estate Planning now
Division 296, often called the “$3 million super cap,” will come into effect from the 2025–26 financial year.
While it is subject to change, as it currently stands the tax will have important implications for many Self-Managed Super Fund (SMSF) members, and their Estate Planning.
What is Division 296?
Division 296 is proposed to introduce an additional 15% tax on earnings linked to the portion of a superannuation balance above $3 million.
A couple with an SMSF worth $6 million split evenly ($3M each) may not be affected. But if one partner’s balance is higher—say $3.5M compared to $2.5M—the higher-balance member may face Division 296 tax.
Each year, the ATO will assess balances as at 30 June, and they will calculate a tax amount based on “notional earnings.”
This is a new consideration for long-term SMSF planning, particularly for those approaching or already above the cap.
For many Victorians, especially those with property-rich SMSFs, this change may be more relevant than expected. Strong Melbourne property values and rising regional land prices mean some trustees could find themselves crossing the threshold over time.
Estate Planning considerations
Division 296 implications can also interact with Estate Planning decisions.
Here is how you can be proactive:
- Binding Death Benefit Nominations (BDBNs): Reviewing these can help ensure they remain appropriate under the new rules.
- Reversionary pensions: If pensions are set to automatically revert to a spouse, combined balances may potentially exceed the cap and create additional tax implications.
- SMSF control & succession: Planning for the future management of the SMSF remains important, particularly where you involve family members or hold large assets. Discover how to take control of your super here.
Who may be most affected in Victoria?
While every SMSF is unique, the following groups may want to pay closer attention:
- Property investors in Melbourne: SMSFs holding residential or commercial property in high-value suburbs may see balances increase significantly.
- Regional landowners: Rising valuations of farmland in Gippsland, the Western District, and other regions may contribute to balances above $3 million.
- Business owners: Where SMSFs hold commercial premises used in a business, property growth may increase exposure.
Practical next steps for trustees
Division 296 doesn’t necessarily require drastic changes, but it may be worth reviewing your arrangements with your professional advisers:
- Seek coordinated advice: Accountants, financial advisers, and estate lawyers can work together to provide tailored guidance.
- Explore options: Depending on personal circumstances, strategies like rebalancing between spouses, using family trusts, or adjusting investment structures may be worth considering.
- Stay proactive: Reviewing your SMSF and estate planning documents early can provide peace of mind and help identify opportunities.
For tailored advice on how Division 296 may affect your estate planning and SMSF strategy, contact Aintree Group Legal.
Our team can guide you through the options that best suit your individual circumstances, with integrated support from the accounting and wealth teams at Aintree Group.
The proposed Division 296 tax represents a shift in how we now tax super balances, and for some SMSF members in Victoria, it may have meaningful estate planning consequences.
The good news is that with thoughtful preparation, trustees can continue to manage their funds effectively and support their long-term goals.
If you’re unsure how these changes may apply to your situation, consider speaking with your trusted advisors. A review today could help ensure your SMSF and estate planning remain well-structured for the future.
This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your accountant and lawyer.
