Have a Defined Benefit? Here’s Why Super Div296 tax Could Still Hit You

From 1 July this year, a new tax called Division 296 will apply to individuals with total super balances over $3 million. The consultation period for the new draft legislation closed last week.

It’s being positioned as a tax for the ultra-wealthy but if you have a defined benefit (DB) pension, things get a lot murkier. Even if you’re under that $3 million mark in real-world terms, you could still be caught up in it.

Here’s why.

DB pensions—like those from PSS or MilitarySuper—don’t have a normal, visible account balance. Instead, your future benefit is estimated using a government-prescribed formula. That prescribed factor hasn’t been released yet. Depending on what number they use, your “notional” balance could end up tipping you over the threshold, even if it doesn’t feel like you’ve got $3 million sitting there.

And it’s not just about your DB scheme. Div296 looks at your total super across all funds.
So if you’ve got a defined benefit pension plus other super in a retail, industry or SMSF account, the combined total could still push you over the line.

We’re now less than 6 months from the start date, and there are still major unknowns:

• We’re still waiting for the regulations.​
  The rules that explain how DB balances will be calculated haven’t been released yet.
  📌 Example: A $100,000 per year pension could be valued at $1.6m or $3.3m—depending on the "prescribed factor" as mentioned in the draft legislation.

• How will this interact with the existing DB tax rules?​
  Some people could end up being taxed under two systems at once.
  📌 Example: A retiree with a high pension might end up with an effective tax rate above 47%.

• No transitional rules announced (yet).​
  People may be taxed on benefits they’ve already accrued over decades of service.
  📌 Example: A long-serving public servant could be taxed as though their DB pension suddenly "grew" overnight just because of how the numbers appear on paper.

• Temporary increases (like reversionary pensions from the passing of a pensioner) could cause valuation spikes.​
  📌 Example: A surviving partner might briefly receive a higher pension for 7 paydays and be taxed as though that figure is permanent.

• Indexation may be treated as ‘earnings’.​
  Even standard increases designed to keep pace with inflation could trigger the tax.
  📌 Example: A 4% indexation rise might bump someone with a $2.9m balance into tax territory—even though their spending power hasn’t changed.

At Thomson Wealth, we’re currently prioritising our Family CFO clients—modelling the possible impact of Div296 and helping them make informed decisions about cash flow, tax and retirement planning before 1 July.

If you have defined benefit, especially alongside other large super funds, and haven’t yet engaged a financial adviser to help you plan through this, now is the time.

Book a quick 15-minute call with me today.

⚠️ This is general information only and reflects my views based on the draft legislation available at time of writing. The final rules may change.