Division 296 Has Passed – Why Personal Injury Recipients May Be Exempt For Life
By Andrew Reynolds
Disclaimer: please understand that this blog article is not financial advice, please do not make any financial decisions based on the information in this article. Every person’s situation is different. Please seek financial advice before making any decisions, you can click the Contact Us button below if you’d like further information.
On 10 March 2026, the Division 296 superannuation tax officially passed through Parliament. This is a significant piece of legislation that will affect Australians with large superannuation balances from 1 July 2026 onwards.
There has been a lot of media coverage about this new tax, but there is one important exemption that has received very little attention – and it is directly relevant to anyone who has received, or may in the future receive, a personal injury settlement or court-ordered compensation payment.
In short: if you have ever made a structured settlement contribution into your superannuation, or you make one in the future, you may be exempt from Division 296 tax for life.
What is Division 296?
Division 296 is a new personal tax that applies to individuals whose total superannuation balance exceeds $3 million. It imposes an additional 15% tax on superannuation earnings attributable to the portion of the balance above $3 million, and a higher rate of 25% for balances above $10 million. This is on top of the existing 15% tax already paid by superannuation funds on their earnings.
The tax is assessed to the individual, not the superannuation fund itself – though you can elect to have the tax paid from your super fund. The first assessments will be issued by the ATO after 30 June 2027.
For most Australians, this tax will not apply – it is estimated to affect around 80,000 to 90,000 people. However, for those with larger superannuation balances, or those whose balances may grow above $3 million over time, it is an important consideration.
The Structured Settlement Exemption – A Lifetime Carve-Out
Here is the part that many people are not aware of.
The Division 296 legislation specifically exempts individuals who have received a structured settlement contribution into their superannuation – at any time. The language in the legislation is clear: if a structured settlement contribution has been made in the current income year, or in any earlier income year, the individual is not liable for Division 296 tax.
This means the exemption is not a one-off. It is permanent. If you made a qualifying structured settlement contribution ten years ago, you are exempt. If you make one next year, you are exempt from that point forward. It is a lifetime exemption from Division 296 tax, regardless of how large your superannuation balance grows in the future.
This is an incredibly valuable carve-out for people who have suffered a personal injury and had their compensation contributed to superannuation under the structured settlement rules.
What is a Structured Settlement Contribution?
A structured settlement contribution is a specific type of superannuation contribution that arises from a personal injury compensation payment. It is governed by section 292-95 of the Income Tax Assessment Act 1997 (ITAA 1997).
When a person receives a lump sum payment as compensation for a personal injury – whether through a settlement agreement or a court order – they may be able to contribute some or all of that payment into their superannuation fund as a structured settlement contribution.
The key advantage is that this type of contribution does not count against the non-concessional contributions cap. There is no limit on the amount that can be contributed under this provision. It also does not count towards your total superannuation balance for the purposes of a number of important superannuation thresholds.
And now, with the passage of Division 296, it also provides a lifetime exemption from this new tax.
What Are the Requirements?
To qualify as a structured settlement contribution under section 292-95, a number of conditions must be met:
The payment must arise from a settlement or court order that compensates the person for a personal injury. The settlement agreement or court order must specifically identify the payment, or a portion of the payment, as being in respect of personal injury.
Two legally qualified medical practitioners must certify that, because of the personal injury, it is unlikely the person can ever be gainfully employed in a capacity for which they are reasonably qualified by education, experience or training.
The contribution must be made to a superannuation fund within 90 days of the later of the day the payment was received or the day the settlement or court order came into effect.
Before the contribution is made, the member (or their legal personal representative) must notify the superannuation provider using the approved form that section 292-95 is to apply to the contribution.
These requirements are strict, and getting any of them wrong can mean the contribution does not qualify. In particular, the wording of the settlement agreement is critical – if the payment is not specifically identified as compensation for “personal injury,” it may not meet the requirements.
Why This Matters – A Practical Example
We regularly speak with people who have had a personal injury claim settled, and in many cases, the structured settlement contribution rules are either not considered, or the settlement is not worded in a way that allows the contribution to qualify.
This has always been an important issue, because a qualifying structured settlement contribution provides significant benefits – it sits outside the contribution caps, it is excluded from total superannuation balance calculations for various purposes, and it can enable a person to commence a tax-free income stream.
But with Division 296 now law, the stakes are even higher. A qualifying structured settlement contribution now also provides a permanent exemption from what could be a very significant ongoing tax liability.
To illustrate just how powerful this exemption is, consider the following example:
Robyn has $4.5 million in superannuation. She suffers a personal injury and receives a compensation payment. Even if only $1 of that compensation is for personal injury and is contributed to her superannuation fund as a structured settlement contribution under section 292-95, Robyn is exempt from Division 296 tax – not just for this year, but for life. It does not matter how large her superannuation balance grows in the future. The exemption is permanent.
Without that $1 structured settlement contribution, Robyn would be paying Division 296 tax every year on the earnings attributable to the portion of her balance above $3 million. Over a number of years, this could amount to tens or even hundreds of thousands of dollars in additional tax.
The takeaway here is clear – the value of getting a personal injury settlement structured correctly cannot be overstated. Even a very small amount of personal injury compensation, properly contributed under the structured settlement rules, can provide a lifetime shield from this new tax.
If you are currently in the process of settling a personal injury claim, or you expect to receive a settlement or court-ordered compensation in the future, it is essential that you understand these rules and that the settlement is structured correctly. A small oversight in the wording of a settlement can mean the difference between a lifetime tax exemption and no exemption at all.
Already Received a Settlement?
If you have already received a personal injury payment and made a qualifying structured settlement contribution into superannuation in a prior year, the good news is that you are already exempt from Division 296 tax. The legislation is retrospective in this regard – the exemption applies if a structured settlement contribution was made “at any time.”
However, it is important to make sure the contribution was properly documented and reported to the ATO. If you believe a structured settlement contribution was made to your superannuation fund, particularly if it was made before 1 July 2017, contact your fund’s administrator to confirm it has been correctly recorded.
What If I Haven’t Made a Structured Settlement Contribution Yet?
If you have received a personal injury compensation payment but haven’t yet contributed it to superannuation, be aware that there is a strict 90-day window to make the contribution from the later of the date you received the payment or the date the settlement or court order came into effect.
If you are outside this window, the contribution will not automatically qualify under section 292-95 and the Division 296 exemption will not apply.
However, it may not be too late.
In certain circumstances, it may be possible to apply to the ATO for a Private Ruling to allow the structured settlement contribution to still be made outside of the 90-day window. A Private Ruling is a formal determination by the ATO on how the tax law applies to your specific situation, and in some cases, the ATO has accepted that contributions made outside the standard timeframe can still qualify under section 292-95.
We have had prior success in assisting clients with this process. While there is no guarantee that the ATO will approve a Private Ruling in every case – each application is assessed on its own merits – it is absolutely worth exploring if you believe you may have missed the window. Given the lifetime Division 296 exemption that is now attached to a qualifying structured settlement contribution, the potential benefit of pursuing a Private Ruling has never been greater.
If you think this may apply to you, get in touch with us and we can discuss your situation and whether a Private Ruling application may be appropriate.
This is one of the reasons we always encourage people going through a personal injury claim to seek financial advice early – ideally before the settlement is finalised, not after. The financial decisions made at the time of settlement can have consequences that last a lifetime.
What Should You Do?
If you are going through a personal injury claim, or have recently received a settlement or court-ordered compensation, we strongly recommend you seek advice before making any financial decisions. The interaction between personal injury settlements, superannuation law, and the new Division 296 tax is complex, and getting it right can make a significant financial difference.
If you are a lawyer acting for a client in a personal injury matter, the structured settlement contribution rules are something your client should be made aware of before settlement. The wording of the settlement itself can determine whether or not the contribution qualifies, which now carries even more weight given the Division 296 exemption.
We are here to help if you have any questions. Click the Contact Us button below to get in touch.
