Division 296: The New Super Tax and What It Means for Your Business Exit

For years, the standard advice for family business owners selling their business has included a super strategy: use the small business CGT concessions to contribute sale proceeds into superannuation, shelter them from tax, and fund your retirement from a tax-advantaged environment.

It's still broadly good advice. But from 1 July 2026, a new piece of legislation called Division 296 changes the picture for owners with large super balances — or those whose sale proceeds would push their super above $3 million.

This article is a plain English explanation of what Division 296 is, who it affects, and how to think about it if you're planning to sell your business in 2026 or beyond.

What is Division 296?

Division 296 is a proposed change to Australia's superannuation tax rules. Its core effect is simple: if your total super balance exceeds $3 million, a 15% tax will apply to a portion of the earnings inside your super account.

This is different from how super taxation currently works. Right now, super funds pay tax on earnings at 15% in the accumulation phase — but only on contributions and investment income. Division 296 adds a second layer: it taxes the "notional earnings" on balances over the $3 million threshold, based on the growth in your super balance from year to year.

In plain terms: if your super grows from $3.2 million to $3.5 million in a financial year, Division 296 taxes a proportion of that $300,000 growth at an additional 15%. You end up paying more tax on the growth in the portion of your super that sits above the $3 million cap.

The $3 million threshold is not indexed. That means over time — as investment returns compound and more people contribute — it will capture an increasing number of Australians.

Why does this matter to business owners selling their business?

The connection between Division 296 and a business sale runs through the small business CGT concessions — specifically the retirement exemption.

Under the retirement exemption, eligible small business owners can contribute up to $500,000 (lifetime limit) of capital gains from a business sale directly into their super account, effectively paying no CGT on that amount. It's one of the most useful tax tools available to Australian business owners, and it remains available under Division 296.

The issue isn't the exemption itself. The issue is what happens after the money goes into super.

If a business owner already has $2.8 million in super and uses the retirement exemption to contribute $500,000 from their sale, their super balance is now $3.3 million. From 1 July 2026, the earnings on that $300,000 above the $3 million threshold will be subject to the Division 296 tax — on top of the standard 15% earnings tax that applies to all super in accumulation phase.

For many owners, this is not a reason to avoid using super as part of the exit strategy. The tax rates inside super — even with Division 296 — are generally lower than the marginal tax rates that would apply to the same earnings outside super. But it is a reason to model the numbers before you decide, rather than assuming super is automatically the best home for your sale proceeds.

The CGT concessions still work — but understand the full picture

To be clear: Division 296 does not affect the CGT concessions at the point of sale. The small business CGT concessions — including the 15-year exemption, the retirement exemption, the 50% active asset reduction, and the general 50% discount — all remain available to eligible sellers.

What Division 296 affects is the ongoing taxation of a super balance once it exceeds $3 million. So the question for sellers is not "should I claim the CGT concession?" (almost always yes, if you're eligible), but rather: "what happens to the money once it's inside super, and does that change how I structure this?"

Let's look at two different scenarios:

Scenario A: Super balance under $3 million post-sale

If your super balance is well under $3 million and a sale contribution won't push it significantly above that, Division 296 probably doesn't materially affect your planning. Super remains a highly tax-advantaged structure. Use the retirement exemption, get the proceeds into super, and move on.

Scenario B: Super balance already above (or close to) $3 million

If you're already at or near the $3 million threshold, contributing more into super via the retirement exemption creates a Division 296 liability on the ongoing earnings of that balance. Whether that's still worth it depends on:

• How long you expect the money to stay in super (the longer it stays, the more the ongoing earnings tax compounds)
• What tax rate would apply to the same earnings if the money sat outside super (if your marginal rate is 47%, the 30% effective super rate under Division 296 may still win)
• Whether you're approaching the transfer balance cap (the limit on how much super you can move into the tax-free pension phase — currently $1.9 million)
• Your age and expected drawdown timeline

These are the kinds of questions a good financial adviser should be working through with you before you structure a sale, not after settlement.

What about the 15-year exemption?

The 15-year exemption is the most generous of the small business CGT concessions: if you've owned the business (or its assets) for at least 15 years and are aged 55 or over and retiring, the entire capital gain is exempt from CGT. No tax. You don't even need to contribute anything into super to access it.

For owners who qualify, this is usually the first concession to apply — and it often eliminates the CGT entirely, removing the need to use the retirement exemption at all.

If you qualify for the 15-year exemption and your CGT liability disappears, Division 296 becomes less relevant to your sale structure (though it may still matter for how you invest the proceeds).

The practical lesson: before worrying about Division 296, make sure you understand which CGT concessions you're eligible for. The 15-year exemption might make the whole question moot.

The timing question: does selling before 1 July help?

This is a common question, and the answer is: not really, for most people.

Division 296 doesn't apply to the sale event — it applies to super balances from 1 July 2026 onwards. If you sell your business today and contribute proceeds into super, your super balance is higher from today. Division 296 will apply to the earnings on the portion above $3 million from 1 July 2026 regardless of when the contribution was made.

There is a narrow window where timing might matter if your super is currently just under $3 million and a contribution would push it just over — because the sooner you contribute, the sooner the Division 296 clock starts (after 1 July). But for most sellers, this doesn't change the fundamental calculus enough to drive timing decisions.

Don't let Division 296 be the tail that wags the dog on your exit timing. Sell when it makes business sense to sell. Then structure the proceeds intelligently.

Alternatives to super for sale proceeds

If super above $3 million becomes less attractive under Division 296, where do the proceeds go instead? Common alternatives include:

• Investment bonds — Tax-effective structures for investments held 10+ years; earnings taxed at 30% within the bond, withdrawals tax-free after 10 years
• Family trusts — Distribute income across family members to access lower marginal rates; complex to set up and maintain, but useful for ongoing investment income
• Direct investment portfolio — Straightforward, but earnings taxed at marginal rates (up to 47%); CGT discount available for assets held 12+ months
• Property — Familiar to most business owners; illiquid but tax-efficient for long-term holds

None of these are universally better than super — each has trade-offs. The right answer depends on your age, income, family structure, and how long you expect to hold the investment. This is precisely the kind of analysis a financial adviser earns their fee on.

What to do before 1 July 2026

If you're planning to sell your business in 2026, here are the practical steps to take now:

1. Check your current super balance — Know where you stand relative to the $3 million threshold before you start modelling sale scenarios.
2. Assess your CGT concession eligibility — Work with your accountant to determine which concessions apply to your sale. The 15-year exemption may eliminate the CGT entirely, changing the picture completely.
3. Model post-sale super contribution scenarios — Ask your financial adviser to run the numbers on contribution vs. no contribution, with and without Division 296 in the picture.
4. Consider the transfer balance cap — You can only move $1.9 million into the pension phase (where earnings are tax-free). Super above that stays in accumulation and faces Division 296 on earnings above $3 million.
5. Don't make timing decisions based on Division 296 alone — It's one factor among many. The business market, your readiness, buyer quality, and your personal circumstances matter more.

Is Division 296 definitely happening?

As of March 2026, Division 296 has passed the House of Representatives but has not yet passed the Senate. The government has stated its intention to legislate it from 1 July 2026, and most financial advisers are planning on the basis that it will proceed — though the final form of the law may change.

It's worth staying across this if you're actively planning a sale. Updates will be published in the Federal Budget and through the ATO's website as legislation progresses.

The bottom line

Division 296 is a real change to the superannuation landscape, and it matters to business owners planning their exit — particularly those with existing large super balances or those expecting significant sale proceeds.

But it doesn't fundamentally break super as an exit strategy. It adds complexity. It means the analysis needs to happen before settlement, not after. And it's one more reason why the planning stage of a business exit — the 12 to 18 months before you list — is where the value gets created or lost.

If you're thinking about selling and haven't yet worked through the super implications, that conversation with your financial adviser is worth having now. The rules that apply on 1 July 2026 are already knowable today. Make sure your exit plan accounts for them.