posted in: Investment Advice

Should I take money out of super before the new tax starts?

Division 296 – the new tax on large superannuation balances – is now law and takes effect from 1 July 2026. If your super balance is approaching $3 million, it’s natural to wonder whether you should move money out before the new rules apply.

The short answer is: it depends. While tax is certainly part of the equation, it shouldn’t be the only factor driving the decision.

In this article, we’ll explain what Division 296 actually changed, why withdrawing super isn’t automatically the right move, and some of the broader considerations that are often overlooked.

What Division 296 actually changed

From 1 July 2026, an additional tax applies to individuals with a Total Superannuation Balance (TSB) above $3 million:

• An extra 15% tax applies to realised earnings attributable to the portion of your balance between $3 million and $10 million.
• A further 10% applies to the portion above $10 million, taking the effective rate on that top slice to around 40%, once combined with the standard 15% fund tax.
• Both thresholds are indexed and will rise over time.
• Importantly, the final legislation taxes realised earnings, actual income and capital gains you’ve locked in, not unrealised paper gains. This is a genuine change from the original 2023 proposal, and it’s a detail a lot of commentary still hasn’t caught up with.

Only around 80,000-90,000 Australians are expected to be directly affected, roughly 1 in 200 people with super. If you’re one of them, or getting close, the decisions you make before 30 June 2027 (the first TSB measurement date) matter.

Is withdrawing super the right move?

For some clients, moving money out of super, or into a different structure, such as a spouse’s superannuation fund, is a genuinely useful part of the strategy. Rebalancing a couple’s super, for example, can keep both partners under the $3 million threshold even where a combined balance would otherwise trigger Division 296.

But this isn’t a decision to make on the tax question alone. A few things need to be worked through first:

• Selling assets inside super has its own tax consequences. Depending on whether your account is in accumulation or pension phase, triggering a sale to fund a withdrawal can create a capital gains tax bill that outweighs the Division 296 saving you were trying to avoid.
• Moving funds into another structure isn’t always simple. A spouse’s super account, a family trust, or a personal investment portfolio each come with their own contribution caps, timing rules and tax treatment.
• Super still comes with preservation rules. In most cases, you need to meet a condition of release,  such as reaching preservation age and retiring, or turning 65, before you can access your balance at all, regardless of what Division 296 does.

“So often we see clients come to us with a very specific question – should I avoid this tax, should I buy shares, should I do X or Y – rather than zooming out and looking at the bigger picture. There’s a lot of money at stake here, and a lot of potential tax too, so let’s do it properly.”
– Ethan Stein, Director & Financial Advisor

What are the alternatives?

Depending on your circumstances, withdrawing money from super may be only one of several options worth exploring. Other strategies could include:

• Rebalancing super balances between spouses where appropriate.
• Reviewing whether future contributions should be directed differently.
• Considering whether certain investments are better held inside or outside super.
• Reviewing your broader wealth structure alongside trusts, companies and personal investments.

Every situation is different, which is why these strategies should always be considered together rather than in isolation.

Why the bigger picture matters more than the tax question

A reactive answer to “should I take money out” can solve this year’s tax problem and quietly create a bigger one a few years down the track – the wrong structure, lost access to concessional treatment, or a withdrawal you can’t actually make anyway because you haven’t met a condition of release.

The more effective approach starts with your goals – retirement timing, estate intentions, how you want your wealth split across super, property and other structures, and works backwards from there. Once we understand where you want to be in five, ten or fifteen years, the Division 296 question is usually much easier to answer, because the decision is being made in context rather than as an isolated reaction.

Tax is important, but it’s rarely the end goal.

For most people, the real objective is retiring comfortably, building wealth efficiently and maintaining flexibility throughout retirement. Sometimes that means paying a little more tax today if it supports a better long term outcome.

Looking at one decision in isolation can also lead to unintended consequences elsewhere. A strategy that reduces your Division 296 exposure could affect estate planning, asset protection, future contribution opportunities or the overall structure of your wealth.

That’s why financial planning isn’t simply about finding the lowest possible tax outcome. It’s about making decisions that support your broader financial goals over the long term.

The bottom line

Division 296 is a significant change for Australians with larger super balances, but it shouldn’t be the sole driver of your financial decisions.

If your super balance is approaching $3 million, it’s worth understanding how the new rules apply to your situation well before the 30 June 2027 measurement date. Taking the time to review your options now can help you make more informed decisions and avoid reacting to headlines or unnecessary urgency.

If you’d like to understand how Division 296 fits into your broader financial strategy, our team is here to help. We can work with you to assess your super, explore your options, and develop a strategy that’s aligned with your long term goals, not just the latest tax changes.

Financial Disclaimer: The information provided in this article is for general knowledge and informational purposes only and does not constitute financial advice. Individual circumstances vary significantly. It is essential to consult with a qualified and licensed financial planner before making investment decisions. Past performance of any asset class is not indicative of future results.