Want to boost your super without breaching the $3 million cap? Read this.

Since its first appearance in 2023, the Australian Government’s drafts and redrafts of the Division 296 tax have weighed heavily on the minds of Australians. The Division 296 tax is now law.

Here’s a snapshot of the bill, as it stands:

It will apply from 1 July 2026.
If your total super balance exceeds $3 million, an extra 15% tax applies to the earnings attributable to the portion above $3 million.
If your total super balance exceeds $10 million, that additional tax increases to 25% on the earnings attributable to the amount above $10 million.
The tax only applies to the proportion of earnings over the threshold, not the entire balance.
Thresholds are indexed to inflation, so we can expect them to increase over time.

One of the questions burning hot on people’s minds is this: How can I boost my super without breaching the 3 million cap?

Amid the shifting landscape of super rules, it's a perfectly reasonable query, and one worth unpacking.

From a wealth management perspective, a question like this tells me a few things about you. It tells me you’re aware of the benefits that come with using super as a structure. It also tells me that you’re cautious of tax eating into the super you’ve worked hard for—a good thing to be conscious of, especially as tax strategy plays such a major role in good financial planning.

However, it’s also a question that comes with a few built-in assumptions. Assumptions that need to be interrogated before you can expect to arrive at a useful answer. So, let’s take this opportunity to do just that:

The first assumption is that breaching the $3 million threshold is something you’ll want to avoid at all costs.

The reality is that there are likely to be instances where surpassing the threshold may not necessarily be a negative outcome.

While Div 296 introduces an additional 15% tax on earnings above $3 million, superannuation is still a comparatively tax-effective financial structure. The higher tax rate applies only to the portion above the threshold, with the balance below $3 million continuing to be taxed at concessional rates: 15% in accumulation, or 0% in the pension phase. In some situations, accepting the additional tax inside super may produce a better outcome than redirecting funds into structures taxed at full marginal rates (at least up to the $10m threshold).

The second assumption is that you can grow your super beyond the Div 296 threshold.

The reality is that with contribution limits and indexation, growing your super balance to a level that surpasses Div 296 thresholds is far more challenging than it might seem from the outset.

Under current super laws, once your balance reaches $2 million, your contribution ability shrink significantly. From that point onwards, you effectively have just two vehicles for moving money into super:

Annual concessional contributions (which are capped at $30,000). (Noting there are additional hoops once you aged 67 and then only SGC after age 75).
One-off downsizer contributions, which, provided you meet the stringent eligibility criteria in the first place, are capped at $300,000.

Outside of these pathways, there’s then little opportunity to materially grow super through new contributions. So, while you might assume that you will be affected by Div 296 one day in the future, this may not actually be the case. Especially when you consider that the threshold is set to be indexed too.

For example:

Take someone aged 58 with $2 million in super today. If they contribute $30,000 each year for the next seven years, by age 65 their super balance might be around $2.5 - $3 million. Over the same period, if the Division 296 threshold is indexed at around 3% per year, the $3 million cap rises to roughly $3.7 million. In this scenario, they would not actually be affected by Div 296.

Before you start making decisions on what to do about Div 296, it’s important to first work out whether you are realistically likely to end up in its line of fire. For high net worth individuals, this requires holistic financial modelling that accounts for where you are now, where you’re heading next, and how super fits into that bigger picture.

The third assumption is that there are set, universal strategies you can apply to reduce Div 296 tax exposure.

The reality is that while there’s various strategies for maximising super without breaching the threshold, there is no single ‘best approach’. What makes sense depends on a wide mix of factors: your financial position, life stage, risk tolerance, family circumstances, and long-term plans.

To illustrate, here are just three examples of strategies that may be appropriate in certain situations, yet completely unsuitable in others.

Directing contributions across two super balances

In spousal relationships where there is major disparity between partners’ super balances, directing contributions towards the lower balance account can help spread super more evenly between two people and, in certain cases, enable couples to avoid the firing line of the Div 296.

However, this is a strategy that also requires careful consideration of estate planning arrangements, binding death benefit nominations, and family dynamics. In some situations, such as in relationships where finances are kept intentionally separate, this approach may not be appropriate at all.

Managing balances

For some people, opportunities to manage Division 296 exposure arise later, particularly once they’re over 60 and moving into the pension phase.

At this stage, how withdrawals are taken from super can influence how much remains in the pension phase versus accumulation. Drawing down pension balances unnecessarily can leave more money sitting in accumulation, where earnings may be taxed. Managed carefully, withdrawals can help preserve more of a balance in the pension phase, which changes your overall tax composition of superannuation.

Whether this is possible depends on how a person’s super is structured, how close they are to their transfer balance cap, and the rules in place at the time.

Using alternatives outside super

In other cases, the most appropriate option may sit outside super altogether.

If you’re already close to the $3 million threshold or no longer eligible to contribute, there may be limited ability to continue to push additional money into super. At that point, the tax advantage offered by super starts to narrow.

One alternative that may be worth looking into in these situations is investment bonds. These are long-term investment structures taxed by the bond provider at 30%, rather than at your personal marginal tax rate. Historically, that made them less attractive compared to super taxed at 15%.

However, in a post-Div 296 environment, that comparison changes. If earnings above $3 million in super are effectively being taxed at higher rates, an investment bond can suddenly look like a more sensible alternative.

So, where does this leave you?

If there’s one takeaway from this, it’s that Div 296 doesn’t lend itself to quick answers or blanket rules. While “How can I avoid it?” is an understandable knee-jerk reaction, I’d argue that the more important question to ask is “If the path I’m on puts me in line for the Div 296 tax, what does a sensible response look like in the context of my broader financial life?”

Decisions around super and tax cannot be made in isolation or in reaction to a single piece of legislation. Like all parts of a strong financial plan, every building block must be considered with the bigger picture in mind: your other financial structures and plans, but also your family dynamics, your ambitions for the future, and what you want for your wealth and life.

If that big-picture perspective is lacking in your life, please get in touch with our Wealth Management advisors for a confidential conversation.

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