From 1 July 2026, the proposed Division 296 tax is expected to change the way superannuation is taxed for individuals with balances exceeding $3 million.

Much of the public discussion has centred on whether the tax is fair, how it will be calculated, and who will be affected. While these are important questions, there is another issue that deserves equal attention.

For many Australians with significant superannuation, Division 296 is not simply a tax issue—it is an estate planning issue.

At Hill Legal, we believe this aspect has received far less attention than it deserves.

Who should be paying attention?

If you have a substantial superannuation balance, particularly through a Self-Managed Super Fund (SMSF), it’s important to consider how Division 296 may affect not only your finances during your lifetime, but also your family after you’re gone.

This is particularly relevant if you have:

• Superannuation exceeding $3 million
• An SMSF
• Business real property or other illiquid investments held in super
• A reversionary pension
• A blended family
• Adult children as beneficiaries
• Testamentary trusts
• Family trusts or private companies
• Different beneficiaries receiving different assets

For these clients, the most important question may not be whether Division 296 applies during their lifetime.

Instead, the question becomes:

If a Division 296 tax liability arises after your death, who is intended to pay it?

Without careful planning, the answer may be very different from what you intended.

Why estate planning matters

Estate planning is about far more than deciding who receives your assets.

A well-structured estate plan should also determine who is responsible for debts, expenses and taxation that arise after death.

This can include:

• Income tax
• Capital gains tax
• Estate administration expenses
• Outstanding debts
• Trust and company liabilities
• Tax on superannuation death benefits
• Potentially, Division 296 tax

One of the complexities is that superannuation often doesn’t form part of your estate.

Instead, it may be paid directly to your nominated beneficiary under the rules of your superannuation fund.

This creates the possibility that one person receives the superannuation benefit, while someone else is left dealing with the associated tax liability.

Without clear planning, this can produce outcomes that are unfair, uncertain and contrary to your wishes.

Timing can create unexpected problems

Another challenge is that Division 296 liabilities may not become apparent immediately after death.

By the time a liability is identified:

• Superannuation benefits may already have been paid.
• Estate assets may have been distributed.
• The executor may have limited funds available.
• Beneficiaries may already have received their inheritances.

If the estate planning documents don’t clearly address who should bear the tax, disputes between beneficiaries can quickly arise.

These are issues that are far easier—and significantly less expensive—to resolve while your estate plan is being prepared than after your estate is being administered.

Looking ahead

In Part 2 of this series, we’ll explore some of the practical situations where Division 296 can have significant estate planning consequences, including:

• Blended families
• SMSFs holding property and illiquid assets
• Reversionary pensions
• Why your Will alone may not be enough
• The documents every high-balance superannuation client should review before 1 July 2026

Need advice?

If you have a substantial superannuation balance or you’re unsure how the proposed Division 296 changes may affect your estate planning, our experienced team at Hill Legal can help.

Call us on (03) 5976 6500 or contact us through our website to arrange a confidential discussion about your estate planning needs.

Next in the series: Blended Families, SMSFs and Why Your Will May Not Be Enough.