Tony Greco, senior tax adviser for the Institute of Public Accountants, said while “everyone was thankful” when the government announced its decision to revise its approach to Div 296 in October 2025, there are certain aspects of the revised proposal that need to be re-worked.
“After the government maintained its steadfast position in the original proposed framework announced in March 2023 for two-and-a-half years, it has hastily put together revised draft legislation for Div 296 which was released in December 2025 with a short consultation period which ended Friday, 16 January 2026,” Greco said.
“The improvements to its original proposal, including removing the inclusion of unrealised gains and incorporating the indexing of thresholds were widely welcomed. [However], the government should allow more time to address these widespread concerns in order to get the balance right.”
Greco said the revised Div 296 framework was never going to be a “walk in the park” for Treasury as it has to navigate a complex environment of dealing with different types of funds such as SMSFs and APRA-regulated funds, and pension schemes both allocated and defined benefits.
“We have always maintained that the government could have dealt with excessive balances in superannuation differently, before it embarked on this journey. In the main we are dealing with a legacy issue as the current caps in place will restrict accumulation of high balances going forward,” he said.
“The government has recently legislated an objective for super, so introducing more complex administration for the whole of the superannuation system could have been avoided if other options were considered such as the compulsory cashing out to limit the tax concessions for high-balance members which was amongst the many alternatives suggested.”
In a joint submission, the IPA, CA ANZ and CPA raised concerns over the reworked framework, including that a member of a small fund can be subject to Div 296 tax on assets it has no beneficial interest in due to the use of the proportionate approach to allocating Div 296 earnings.
The submission noted that some funds use segregation of assets to specific members which differs from the standard pooled approach where all members share proportionally in the fund’s overall investment returns.
“Trustees are required to act fairly between all fund beneficiaries, and Page 3 allocating income to members in segregated funds from non-beneficially held assets is inconsistent with trustee covenants and common law obligations,” it stated.
Additionally, the submission raised concerns over mandating the need for actuarial certificates for SMSFs that currently are not required to obtain an actuarial certificate in order to perform the necessary calculations.
“We believe the requirement to use an actuary to provide this information via a certificate is unnecessary for small superannuation funds without one or more members with only accumulation monies and/or account-based pensions, which currently are not required to obtain an actuarial certificate,” it stated.
“The Income Tax Assessment Act 1997 (“ITAA97”) does not currently require such funds to obtain an actuarial certificate for ECPI purposes in these circumstances. The proposed requirement would impose further administrative cost on these funds. If necessary, and in time, the Australian Taxation Office (ATO) could provide administrative guidance negating the need for an actuary to be involved in these circumstances.”
Further, it noted that the Div 296 tax liability will arise where the individual’s total superannuation balance just before the start of the year or at the end of the year is greater than the large balance threshold (disregarding the year one transitional measure).
“This goes well beyond the integrity risk identified by Treasury and needs to be significantly narrowed. In contrast, under the government’s original Div 296 tax proposal, the tax that was going to be payable was determined solely by reference to an individual’s TSB at the end of an income year,” it added.
It also noted the potential application of Div 296 following the death of an individual which was addressed as part of the original framework so dying no longer avoids the proposed new tax, as well as issues relating to proposed CGT cost base reset concession for small funds such as the choice not being available on an asset-by-asset-basis, election process, and administrative costs.
Franking credits
Another major issue the accounting bodies’ submission identified was the treatment of franking credits for Div 296 purposes and argued the current approach ignores the fundamental purpose of franking credits and could distort investment decisions.
Richard Webb, CPA Australia superannuation lead, said the proposed framework would lead to inequitable outcomes for superannuation funds, particularly where franking credits are excluded from the calculation of fund earnings for Div 296 purposes.
“Franking credits exist to ensure income is taxed at the shareholder’s correct tax rate. Ignoring them in the new super tax framework produces an unfair and inconsistent result,” Webb said.
“For many super funds, franking credits are effectively a refund of tax already paid. Treating those refunds as irrelevant when calculating earnings is at odds with how our tax system is designed to work.”
The submission warns that the draft legislation would penalise super funds holding assets that generate franked dividends, even where those dividends ultimately attract little or no tax due to superannuation’s concessional tax rates.
“In practice, the proposal could result in identical investment returns being taxed differently, simply because one includes franking credits and the other does not,” Webb said.
“This creates artificial incentives that could push trustees away from Australian equities, potentially harming both retirement outcomes and capital markets more broadly.”
CPA Australia notes that franking credits and similar tax offsets should be treated as part of a super fund’s net income, reflecting their true economic value, rather than being excluded under the proposed Division 296 methodology.
“This isn’t about gaining an advantage. It’s about fair and consistent taxation that reflects real income, avoids unintended consequences, and maintains confidence in Australia’s retirement income system,” Webb added.
CPA Australia urged the government to amend the legislation to ensure franking credits and other similar tax offsets are properly recognised when calculating superannuation fund earnings.
Greco added that there may be more unintended and unfair consequences that will surface in the revised legislation.
“Given the complexity of the proposed legislation and its related but yet to be seen regulations, the government will need to have a mechanism to address these consequences as they occur,” he said.
