A time bomb is quietly ticking away inside the Commonwealth Government’s Division 296 tax regime. It has nothing to do with waterfront property, luxury goods, art or high-frequency trading. It’s cryptocurrency—and it will drag ordinary Australians’ self-managed super funds (SMSFs) into a tax net they were never meant to be caught in.
While the government continues to sell Division 296 as a modest tax reform targeting “very high super balances”—a reference to the $3 million threshold—there’s a critical flaw in their pitch: the numbers lie when volatile assets like crypto are involved.
And it’s not just the top end of town who will pay the price.
From niche to norm: Crypto inside SMSFs
In the early 2010s, crypto was the playground of risk-hungry early adopters. Fast-forward to today, and thousands of Australian SMSFs—run by dentists, retirees, tradies, and schoolteachers—are exposed to Bitcoin, Ethereum, and a growing variety of digital tokens. Many SMSFs made modest investments in bitcoin years ago. A $50,000 allocation to Bitcoin in 2016 is now worth more than $3 million. No complex strategies. No offshore entities. Just patient, long-term investing inside a super fund—exactly what the system was designed to encourage.
Yet under Division 296, SMSFs run by ordinary Australians—individuals and families—will be punished for doing precisely what successive governments, LNP and Labor, have asked of them: to take personal responsibility for their own retirement. To invest for the long term and lessen the burden to the state.
Why Crypto Breaks the $3 Million Myth
The government’s spin around Division 296 relies heavily on popular sympathy for the narrative of taxing the rich. Treasurer Jim Chalmers repeatedly insists it targets only the wealthiest 0.5 percent of Australians—those with super balances exceeding $3 million. However, that figure ignores unrealised gains on volatile assets like crypto.
What does that mean?
– A family-run SMSF with diversified holdings might include a modest crypto allocation—5–10 per cent.
– If the crypto market rallies (as it has in 2020, 2021 and again in 2024), the total value of the fund could spike dramatically over the $3 million threshold on paper.
– Under Division 296, the entire fund is subject to scrutiny—not just the crypto holding—and tax is levied on unrealised gains, not actual cash earnings.
In effect, a fund worth $2.5 million in June 2025 could be valued at $3.2 million in June 2026 purely due to a surge in the price of Bitcoin—triggering Division 296 liability even though nothing was sold, no income was earned, and no real gain was realised.
This isn’t a policy targeting the top end. It’s a dragnet.
Ordinary Australians, haunted by the phantom tax
A family or individual’s SMSF with blue-chip shares, a modest residential property, and a small crypto exposure suddenly moves into the Division 296 danger zone. The tax is not on the income produced by those assets—it’s on phantom growth. Paper gains. Illiquid assets. Tokens that are volatile, complex to value, and impossible to convert at short notice.
Worse, the trustee will need to pay tax now on those gains, and then pay again when the asset is eventually sold, triggering capital gains tax under the normal rules.
That’s not tax fairness. That’s double taxation.
Valuation madness: What is a crypto coin on 30 June?
Cryptocurrencies’ volatility is notorious. Bitcoin can rise or fall 20 per cent in a single week. If the SMSF’s valuation date happens to land on a price spike—say, on 30 June—the fund may be caught in Division 296 liability, even though the “gain” evaporates days later.
Ordinary Australian trustees are not institutional traders. They don’t have access to pricing algorithms or professional valuation tools.
Yet they’ll be expected to: determine the “market value” of digital assets on 30 June to ATO satisfaction; track daily changes in value over the financial year to confirm growth; and defend their positions if audited. And all that, without guidance, without precedent, and without the liquidity to pay. The government is enacting regulatory overreach, bordering on negligence.
Baked-in bracket creep
There’s no indexation for the $3 million threshold. So even if a trustee doesn’t breach the line this year, they might next year—purely because asset prices, including crypto, have gone up. Inflation does the rest. And the kicker? You cannot offset any prior year losses.
That means younger Australians using SMSFs to hold long-term crypto exposure—those aged 35 to 50 who are doing exactly what the system encourages—will be swept into Division 296 automatically over time.
This is not a tax on excess. It’s a slow-burn penalty on aspiration. It also undermines the super industry’s ultimate role: to ensure that we can age with dignity.
Disproportionate impact on regional and multicultural communities
Anecdotal evidence suggests that crypto uptake has been particularly strong among migrant communities and younger investors who might distrust traditional finance. They also see digital assets as a hedge against housing unaffordability.
Many of these families have pooled resources into SMSFs to gain exposure to crypto in a regulated structure. They’ve complied with the rules. They’ve disclosed holdings. They’ve trusted the tax system.
Division 296 sends them a clear message: that trust was a mistake.
We may lose confidence in super and compliance
The fundamental social contract of superannuation—contribute now, defer access, enjoy tax certainty—relies on a stable, predictable tax regime. Division 296 shatters that trust. It treats volatile, illiquid crypto gains as though they were steady wage income. And it traps not just the wealthy, but anyone who bought the right asset at the right time.
Citizen-run SMSFs, managed by families and individuals, are about to get tax bills for being lucky.
The better approach for crypto-heavy SMSFs
There is a fairer, more rational path forward—one that doesn’t penalise compliance or long-term investing. Rather than sweeping ordinary families and individuals into an unintended tax trap, the government could reform Division 296 in targeted, sensible ways.
Highly volatile assets like crypto should be excluded from the tax until gains are actually realised. Safe harbour valuation rules should be introduced so trustees can rely on published exchange prices rather than complex or subjective methods.
The $3 million threshold must also be indexed to prevent bracket creep. And trustees should have the option of realisation-based assessments—especially for illiquid, unpredictable assets like crypto.
These adjustments would restore fairness and uphold a basic principle: tax should apply to real income, not paper gains.
When ordinary Australians get mistaken for millionaires
Division 296 was pitched as a surgical strike on the super-rich. Yet in the real world—where cryptocurrencies are no longer fringe bets but part of everyday portfolios—even modest exposure can tip an otherwise ordinary SMSF over the threshold.
A 10 per cent movement in crypto markets can mean the difference between compliance and a five-figure tax bill, all without a single dollar being realised.
The casualties won’t be billionaires with tax planners —it’ll be the local electrician and their teacher partner, the Uber driver, the small-business owner, and the local farming family.
Division 296 is fundamentally at odds with the core principle our tax system was built on: that you tax real, not imagined, income.
If left unchanged, it will be the working and middle classes—not the ultra-wealthy—who end up footing the bill.
Tony Anamourlis is a tax law specialist in multinational transactions, negotiating with the Commissioner of Taxation and other regulators and is a regular contributor to Neos Kosmos.
