By Alan Weiss – Real Estate Specialist, Eastern Suburbs | 35+ Years’ Experience
From 1 July 2025, the Australian Government is expected to introduce the Division 296 tax, a significant change to superannuation rules that may impact thousands of property investors—particularly those holding real estate through Self-Managed Super Funds (SMSFs).
If your super balance is above $3 million, you could soon be taxed on unrealised gains—even if you never sell the property.
Division 296 is a proposed new tax that will apply a 15% tax rate on earnings above a $3 million total superannuation balance, specifically targeting:
Unrealised capital gains (increases in the value of your super assets, including property—even if not sold)
This tax will be in addition to the usual superannuation tax on income and realised gains, and will apply only to the portion of your balance exceeding $3 million.
Let’s say your SMSF holds one property worth $3 million, returning a 3% rental yield and growing at 4% annually. Under Division 296, only the unrealised capital gain above $3 million is taxed—rental income is not included in this specific tax.
| Year | Property Value | Annual Growth | Rental Income | Excess Over $3M | Division 296 Tax (15% on Unrealised Gain) |
|---|---|---|---|---|---|
| 1 | $3,120,000 | $120,000 | $93,600 | $120,000 | $18,000 |
| 2 | $3,244,800 | $124,800 | $97,344 | $244,800 | $36,720 |
| 3 | $3,374,592 | $129,792 | $101,238 | $374,592 | $56,189 |
| 4 | $3,509,576 | $134,984 | $105,287 | $509,576 | $76,436 |
| 5 | $3,649,959 | $140,383 | $109,499 | $649,959 | $97,494 |
Note: This tax applies only to the capital growth portion above $3 million, and is payable annually—even if no property is sold.
1. Liquidity Pressure
Most property held in super is long-term and not easily liquidated. Taxing unrealised gains means you may face a tax bill without having sold anything—creating serious cash flow pressure.
2. Forced Sales and CGT
If your SMSF is forced to sell property to pay tax or meet liquidity needs, you’ll also face Capital Gains Tax (CGT):
15% in the accumulation phase (or 10% if held over 12 months)
0% in the pension phase (if supporting retirement income)
Note: There is no main residence exemption for property held in super.
3. Compounding Tax Burden
As your property grows in value, a larger portion of your super balance exceeds the $3M threshold. That means your tax liability grows every year, even if your rental income stays the same.
Right now, around 80,000 Australians have super balances over $3 million. However, if the government lowers the threshold:
At $2.5 million, up to 500,000 Australians could be affected
At $2 million, that number could rise to 1.8 million
For many property investors—especially in Sydney’s Eastern Suburbs—this threshold may be closer than they think.
Starting from 30 June 2026, the ATO will assess your super balance each year.
If you own property in your SMSF:
You must report market value of the asset each year
The valuation must be objective, supportable, and evidence-based
Formal valuations are not required, but must be defensible (e.g. from agents, comparable sales, or valuation data)
Your SMSF auditor will review the valuation as part of your fund’s annual return
The valuation you report directly affects your tax obligation, even without a sale.
1 July 2025 – Proposed start of Division 296
30 June 2026 – First official balance assessment
Each financial year thereafter – Annual recalculation based on your reported super balance
Even if your balance is above $3 million today, you won’t be taxed if it’s below the threshold by 30 June 2026.
1985 – CGT introduced: Investors became more cautious about selling
1987 – Negative gearing reinstated: Boosted investment and demand
1999 – CGT 50% discount: Encouraged long-term property holding
2000 – GST introduced: Increased construction costs
2015–2018 – Foreign buyer taxes: Reduced offshore demand
2020–21 – COVID stimulus: Temporary growth in demand and relief for investors
The Division 296 tax proposal could reshape how Australians invest in property through super. It’s not just a high net-worth issue—it’s a strategic planning issue.
Now is the time to:
Reassess your long-term SMSF strategy
Review property valuations
Speak to your accountant or financial adviser
Don’t panic—but don’t ignore it.
Early awareness can help you reduce risk, avoid cash flow surprises, and make smarter decisions about your super.
