Reform roundtable warning on flawed Div 296

Mike Taylor

Managing Editor/Publisher, Financial Newswire

22 July 2025

The Government needs to embark on a more strategic, long-term review of superannuation tax settings in circumstances where its distinctly short-term Division 296 changes may deliver significantly less than envisaged, according to the Institute of Financial Professionals Australia (IFPA).

In a submission to the Economic Reform Roundtable, the IFPA said if the policy objective is to reduce tax concessions for individuals with high superannuation balances, it believes there are more effective and principled alternatives that deserve proper consideration.

“For instance, taxing actual earnings above the $3 million threshold, rather than unrealised gains, would better align with established tax principles and avoid penalising individuals for paper gains that may never be realised,” it said.

“Instead of implementing another isolated change, we call for a holistic review of superannuation tax concessions to ensure the system remains fair, sustainable, and fit for purpose. In our view, there are several viable alternatives the government could explore in place of the Division 296 model, including:

• Compulsory cashing of excessive balances
• Tax on withdrawals above $3 million
• Simplify superannuation thresholds and caps.

The submission warned that if the Division 296 legislation was implemented in its current form it would add significant complexity and uncertainty to the superannuation system, potentially eroding trust, discouraging long-term savings, and distorting investment behaviour.

“This would ultimately reduce productivity by diverting focus from value-adding economic activity toward tax planning and compliance, while also stifling investment, growth, and business confidence,” it said.

“Further, it undermines economic resilience by disincentivising self-funded retirement, which could increase long-term reliance on the Age Pension and other public supports. This weakens the very sustainability the policy aims to protect.

“Crucially, the expected revenue gains from Division 296 may also fall short. Affected individuals are likely to restructure their affairs to invest outside the superannuation system, leading to lower contributions and reduced tax collections over time.

“This behavioural response could erode the superannuation tax base and negatively impact the federal budget – contrary to the government’s stated objectives. These risks underscore the need for a more strategic, long-term review of superannuation tax settings, rather than another short-term measure. “