What is Division 296 tax?

Division 296 is a new Australian tax that applies an additional 15% tax on superannuation earnings for members whose total super balance exceeds $3 million. It starts on 1 July 2026 (applying to the 2026-27 financial year). For balances between $3M and $10M the effective earnings tax rate rises to 30%; for balances above $10M it rises to 40%.

How does Division 296 affect business sale proceeds?

Many business owners plan to contribute sale proceeds into superannuation using the small business 15-year CGT exemption or the retirement exemption. Once Division 296 applies, those super balances above $3M face ongoing earnings tax of 30%+. Owners with large balances need to factor this into their post-sale structuring — and it may make completing a sale before 1 July 2026 more attractive.

Is it still worth using the small business CGT super contribution if Division 296 applies?

Yes, in most cases — contributing sale proceeds to super still provides significant tax advantages, particularly the flat 15% earnings tax and concessional treatment. But the margin narrows if your balance already exceeds or will exceed $3M. A qualified tax adviser should model your specific scenario.

What is the Division 296 threshold?

The threshold is $3 million in total superannuation balance (TSB). If your TSB at the start or end of a financial year exceeds $3M, Division 296 applies to the proportion of earnings corresponding to the excess. The threshold is not indexed to inflation.

When does Division 296 start?

Division 296 starts 1 July 2026 (subject to legislation passing). The first tax assessments will relate to the 2026-27 financial year. This gives owners planning a near-term sale a potential window to complete settlement and structure proceeds before the new rules take effect.

Should I rush a business sale to beat Division 296?

Rushing a sale to beat a tax deadline is rarely the right strategy — a poorly timed sale almost always costs more than the tax you're trying to avoid. However, if you were already planning to exit within 1-2 years, Division 296 is a legitimate factor to discuss with your advisers when setting your timeline.

Division 296 Super Tax: Why Australian Business Owners Are Reconsidering Their Sale Timing

For decades, Australian business owners have built super as their succession safety net. Sell the business, use the small business CGT concessions to tip the proceeds into super, and live off the earnings. It's a clean, tax-effective exit strategy — and it still works.

But it's about to get more expensive for anyone with a super balance above $3 million.

Division 296, legislated to start on 1 July 2026, imposes an additional 15% tax on superannuation earnings attributable to balances above that threshold. For context: super earnings are currently taxed at 15% in the accumulation phase. Division 296 brings the effective rate to 30% for balances between $3M and $10M, and 40% above $10M.

That's not a disaster. It's still less than the top marginal rate. But it changes the calculus on sale timing and post-sale structuring — and if you're within 12 to 24 months of a planned exit, it's worth understanding now.

What Division 296 Actually Does

The mechanics are straightforward. If your total superannuation balance (TSB) exceeds $3 million at any point during a financial year, the tax applies to the proportion of earnings that corresponds to the excess.

Example: you have $4M in super. $1M of that is above the threshold — that's 25% of the total. If your super fund earns $200,000 during the year, the attributable amount is $50,000 (25% of $200,000). Division 296 tax is 15% of that $50,000 = $7,500 extra tax on top of the normal 15% your fund already pays.

It compounds over time. The $3M threshold is not indexed to inflation, which means an increasing number of business owners will be caught as balances grow and asset values rise.

Why This Matters for Business Sale Proceeds

When you sell an Australian small business, you often have access to two powerful CGT tools that allow you to contribute sale proceeds directly into super:

The 15-year CGT exemption: Sell a business you've owned for 15+ years and you're 55 or over (or permanently incapacitated), and the capital gain is fully exempt. You can then contribute up to $1.705M of those exempt proceeds into super as a non-concessional contribution.
The retirement exemption: If you're under 55, you must contribute the exempt amount to super. If you're 55 or over, you choose — but most do, to keep the proceeds in a low-tax environment.

The appeal is obvious: sell a $3-5M business, get a large CGT exemption, park the proceeds in super, and earn investment returns at 15% tax. It's one of the most powerful wealth-creation mechanisms available to Australian small business owners.

Division 296 doesn't kill this strategy. But it does reduce the after-tax return for owners who already have — or will soon have — more than $3M in super. The more you contribute, the more earnings that fall above the threshold, and the more Division 296 applies.

The Timing Question

Here's where it gets practical. Division 296 starts 1 July 2026. The first assessments will relate to the 2026-27 financial year. For a business owner who:

Was planning to exit within the next 1-3 years,
Already has a super balance approaching or above $3M, and
Was intending to use the CGT concessions to contribute sale proceeds to super

… completing settlement before 30 June 2026 means one additional financial year of earnings at 15% before the higher rate kicks in. That's not a reason to rush a bad deal. But it is a legitimate variable in timeline planning.

More importantly, it's a reason to model your post-sale structure now, before you're under the time pressure of an active sale process.

What's Not Changing

A few things worth being clear about:

The small business CGT concessions themselves are unchanged. The 15-year exemption, retirement exemption, 50% active asset reduction, and rollover relief are all still available.
The super contribution caps are unchanged. The $1.705M lifetime non-concessional CGT cap still applies.
Super is still tax-effective. Even at 30%, the accumulation phase compares favourably to most other investment structures for high-net-worth individuals.

Division 296 is not a reason to abandon super as a post-sale vehicle. It's a reason to be more precise about how much you contribute, and to consider whether other structures (investment trusts, direct property, etc.) make more sense for the portion above the threshold.

The Real Risk: Not Planning

The owners most likely to be caught off-guard by Division 296 are those who haven't modelled their post-sale position. They know they're selling in the next year or two. They assume they'll "put it in super like everyone does." They haven't looked at the actual numbers.

If your business is worth $3-8M and your existing super balance is already $1-2M, a full contribution of CGT-exempt proceeds could tip you well above the Division 296 threshold on day one. The earnings tax increase would be immediate and ongoing.

This doesn't mean don't contribute — it means get advice on how much to contribute, in what structure, at what timing.

Questions to Ask Your Adviser Now

If you're planning an exit in the next 1-3 years, these are the Division 296 questions worth raising:

What's my projected total super balance at settlement, after contributions from the sale?
What proportion of future earnings will fall above $3M and attract Division 296?
Is there a case for a partial super contribution and investing the remainder through a different structure?
Does completing settlement before 30 June 2026 change the numbers materially in my scenario?
Is the $3M threshold likely to be indexed in future? (Currently it is not.)

These aren't complex questions, but they require your advisers to model your specific numbers. Generic advice won't get you there.

What This Means for Sale Readiness

One indirect effect of Division 296 is that it increases the value of being sale-ready in advance. If your target settlement date is the 2025-26 financial year, you need to be deep into your sale process by late 2025. Most quality business sales take 6-12 months from first engagement to settlement.

Owners who understand their valuation now — what the business is worth, what structure will maximise after-tax proceeds, what buyer profile makes sense — are in a much better position to move quickly when the timing is right.

That's exactly the kind of clarity our business valuation assessment is designed to provide. In 20 minutes, you get a grounded estimate of what your business is likely worth in today's market, plus the deal structures that typically apply to businesses like yours.