Division 296 and the $3 Million Super Tax: Why Proactive Paraplanning Matters More Than Ever
The recent introduction of Division 296 legislation marks a fundamental shift in how high-balance superannuation accounts will be taxed in Australia. This rule, which is commonly referred to as the “$3 million super tax,” will affect individuals with total super balances exceeding $3 million by levying an additional 15% tax on certain earnings.
While the legislation itself is straightforward in principle, its implications are anything but simple. For financial planners, this presents a landscape full of both pitfalls and planning opportunities. And for us as professional paraplanners, particularly in the outsourced space, this is precisely the kind of legislative shift that demands a proactive, engaged, and strategy-oriented approach.
Too often, paraplanning is seen as reactive: waiting for instructions, modelling what’s been prescribed, and sticking to compliance. But the real value of outsourced paraplanning lies not just in efficient document production—it lies in being a thinking partner. With Division 296 looming, now is the time for paraplanners to demonstrate that value more than ever.
What is Division 296? A Quick Recap
Division 296 introduces an additional 15% tax on the notional earnings of individuals with super balances exceeding $3 million. This is on top of the existing 15% tax on accumulation-phase earnings and the 0% tax on retirement-phase earnings (up to the transfer balance cap).
This tax is calculated based on the unrealised gains and growth in a member’s super balance from one financial year to the next, even if no income was actually realised. The ATO will notify affected individuals and give them the choice to pay the tax personally or release it from their super fund.
Why This Matters for Paraplanners
As outsourced paraplanners, we serve multiple advisers, licensees, and client profiles. Our bird’s-eye view of legislative impact across the profession means we’re often the first to spot the ripple effects of changes like Division 296.
Rather than waiting to be “spoon-fed” strategies, good paraplanners bring ideas to the table. Here’s how we’re thinking about Division 296, and how your paraplanning team should be proactively supporting your strategy development:
Strategic Considerations: Where Paraplanning Can Add Value
1. Super Contributions: Know When to Stop
When paraplanners are reviewing client contributions, especially for high-balance clients, we need to model the trade-offs of continuing to contribute to super once the $3 million threshold is in sight. While concessional and non-concessional contributions remain useful, they could push clients into a higher tax regime on unrealised gains.
A proactive paraplanner won’t just document past contributions—they’ll flag when contribution strategies may need reassessment.
2. Diversification Beyond Super
For clients bumping up against the $3 million threshold, alternative investment vehicles like family trusts, investment bonds, or even company structures can become more attractive. An outsourced paraplanning team with breadth across structures can provide modelling that compares tax impacts across different strategies—beyond just superannuation.
This is where technical expertise and foresight can save advisers hours of research and modelling.
3. Maximising the Transfer Balance Cap
Retirement-phase superannuation (currently capped at $1.9 million per person) remains tax-free. For clients close to retirement, our role is to help planners optimise the use of this cap, ensuring assets generating high income or strong growth are allocated to retirement-phase accounts first.
Paraplanners should actively model the sequencing of pensions, rollovers, and re-contributions to maximise tax effectiveness.
4. Timing of Withdrawals
Withdrawals made before 30 June can reduce the client’s closing super balance, and in turn, their Division 296 tax exposure. While this won’t suit every client, it’s an important tactical lever.
Paraplanners should be generating alternate cash flow scenarios to help planners assess whether pre-June withdrawals could be advantageous without compromising retirement goals.
5. Volatile Assets and Unrealised Gains
Since Division 296 is based on unrealised gains, volatile asset classes (like property or equities) could artificially inflate a client’s balance. This could lead to tax on ‘phantom’ growth that might reverse the following year.
Proactive paraplanners should be flagging this to planners when reviewing asset allocations, and suggesting whether changes to asset mix might be beneficial.
6. Long-Term Planning Without Indexation
The $3 million threshold isn’t indexed. That means more Australians, especially younger high-income earners, will find themselves affected over time. Smart paraplanning involves identifying clients who aren’t affected yet, but will be soon.
By proactively running long-term projections, paraplanners can highlight when Division 296 may become relevant for clients down the track, and allow planners to begin early strategy conversations.
Legislation like Division 296 is a litmus test for the value paraplanners bring. It separates the transactional paraplanners from those who are strategic contributors.
At our outsourced paraplanning firm, we see it as our job to anticipate, not just react. We stay up to date with regulatory shifts, run proactive modelling, and provide strategic insights—not just SOA templates.
Because when it comes to helping financial planners navigate complex tax legislation, it’s not enough to know the rules. You need someone who knows how to play the game—and help you win it.