Division 296 Tax Explained: The New 30% Tax on Super Balances Over $3 Million

🏷️ What is Division 296 tax?🔗

Division 296 tax is an additional tax on super earnings for individuals with very large super balances, inserted into the Income Tax Assessment Act 1997. Super earnings inside a fund have always been taxed at a concessional 15%. Division 296 adds a further 15% on top of that, on the portion of those earnings linked to a total super balance (TSB) above $3 million, for a 30% effective rate on that slice. On the portion of earnings linked to a balance above $10 million, a further 10 percentage points applies, taking the additional Division 296 rate to 25 percentage points there, an effective 40% once the fund's own 15% is added in.

A few things make it different from ordinary super tax:

• It's assessed to the individual personally, not the super fund, though the tax can be paid from the fund via an election.
• It applies across every super fund an individual holds combined, not per account.
• The ATO calculates and issues the assessment itself, using data reported by funds, it isn't something you self-report on a tax return.
• It taxes realised earnings only, interest, dividends, rent and realised capital gains, not unrealised increases in asset values, covered in more detail further down.

📜 How did we get here?🔗

The story starts in February 2023, when the Treasurer announced “Better Targeted Superannuation Concessions.” The original 2023 Bill proposed a 1 July 2025 start date and, most controversially, would have taxed unrealised capital gains as part of the earnings calculation, meaning a rise in the paper value of an asset could trigger a tax bill even if nothing was sold. The SMSF Association, the Tax Institute and CPA Australia pushed back hard on two main points: the $3 million threshold wasn't indexed, so bracket creep would pull in more people over time, and taxing gains on assets that hadn't been sold could create real cash flow problems, particularly for SMSFs holding property or a farm. That original Bill lapsed without passing.

A revised design followed. The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 and its companion Imposition Bill passed Parliament on 10 March 2026 and received Royal Assent on 13 March 2026, with Division 296 tax commencing from 1 July 2026 as planned.

🧮 How the tax is calculated🔗

The calculation runs in two steps: work out what proportion of your total super balance sits above $3 million, then apply that proportion to your actual super earnings for the year.

Step 1, the proportion. Proportion = (TSB reference amount minus $3,000,000) ÷ TSB reference amount. The TSB reference amount is the higher of your total super balance at the start or the end of the financial year, an integrity rule meant to stop someone drawing their balance down right before 30 June just to dodge the tax for that year. For the 2026-27 year only, a transitional rule uses just the closing balance at 30 June 2027.

Step 2, apply it to earnings. Multiply your total super earnings for the year by that proportion to get your taxable super earnings for Division 296 purposes, then tax that amount at 15% (plus a further 10% on the slice attributable to any balance above $10 million).

Worked example. Someone with a $4 million TSB and $200,000 in fund earnings for the year: the proportion above $3 million is ($4,000,000 − $3,000,000) ÷ $4,000,000, which is 25%. Taxable super earnings are $200,000 × 25%, which is $50,000. Division 296 tax at 15% is $50,000 × 15%, which is $7,500, on top of the 15% the fund already paid on its earnings.

“Total super earnings” itself isn't just a bank statement figure, it starts with the fund's taxable income, then adjusts for things like assessable contributions, exempt current pension income and grossed-up franking credits, so it broadly mirrors what the fund was actually taxed on, at the individual level.

🎯 The essential: If the underlying calculation would come out negative in a given year, Division 296 earnings are treated as nil, not a negative number. That means no tax is payable for that year, but there's no refund of tax paid in earlier years and no mechanism to carry a loss forward to reduce a future year's bill.

👤 Who is actually affected?🔗

Roughly 80,000 Australians, about 0.5% of people with super, are estimated to be affected in the first year, anyone whose total super balance exceeds $3 million at the start or end of the 2026-27 financial year or any year after it.

A few details that catch people out:

• It's a combined balance test. All your super interests across every fund you hold are added together. $1.5 million in an industry fund plus $1.6 million in an SMSF is a combined $3.1 million TSB, in scope, even though neither account alone crosses $3 million.
• The threshold is per person, not per couple. A couple can hold up to $6 million in super between two accounts without either partner being individually affected.
• Both accumulation and pension phase count toward the balance, there's no blanket exemption for someone already drawing a retirement income stream.
• The thresholds are indexed, in $150,000 increments for the $3 million threshold and $500,000 increments for the $10 million threshold, tied to CPI, which limits how much bracket creep pulls in new people purely from inflation over time.

Death is handled differently depending on the year. For 2026-27 only, a transitional rule means someone who dies on or before 30 June 2027 has no Division 296 liability for that year, because the calculation uses the closing balance only, and a deceased member's balance is nil by then. From 2027-28 onward, that automatic exemption doesn't apply, since the higher-of-opening-or-closing test means the tax can still arise in the year someone dies, with the liability generally falling to their estate. Separate, ongoing carve-outs exist for people who received a structured settlement contribution and for children receiving a death benefit income stream.

📉 The unrealised gains question🔗

This was the single most contested part of the original 2023 proposal. It used a “balance growth” method that captured increases in asset values even if nothing had actually been sold, meaning an SMSF holding a farm or a commercial property that rose in value could face a real tax bill without receiving any cash income at all. The SMSF Association, the Tax Institute and a long list of other submitters argued this created genuine cash flow problems for anyone holding illiquid assets inside super.

There's still an indirect link worth knowing about, though. Unrealised growth in an asset's value still increases your total super balance, and a higher balance increases the proportion applied to whatever realised earnings you do have that year (the Step 1 calculation above). So an unsold asset that's gone up in value won't itself be taxed, but it can still push more of your realised earnings into the taxable slice. Some professional bodies also flagged that the higher-of-opening-or-closing balance test could catch someone whose balance spiked briefly near year-end and then fell back, even though they never actually banked that higher value.

🏦 What about SMSFs?🔗

Division 296 applies across every type of fund, SMSF, industry or retail, based on the same combined balance test. But SMSF trustees carry extra work that members of large funds mostly don't have to think about.

• Reporting. The SMSF annual return now includes dedicated labels for reporting Division 296 information from the 2027 income year onward.
• Actuarial certificates. For SMSFs with more than one member, earnings generally need to be attributed between members using an actuarial certificate, with exceptions such as single-member funds or years where Division 296 earnings come out at nil.
• Illiquid assets. Division 296 tax is still a personal cash liability, which is the real pressure point for SMSF members holding a farm, commercial property or other illiquid assets. Options include paying it personally, or electing to have money released from the fund, generally within 60 days of the assessment notice, to cover it.
• The cost base reset election. A one-off, irrevocable election available to eligible SMSFs and small APRA funds, letting the fund reset the cost base of its CGT assets to their market value as at 30 June 2026, for Division 296 purposes only. Growth that happened before that date is effectively quarantined from future Division 296 calculations, only growth from 1 July 2026 onward counts. The election is lodged with the fund's 2026-27 annual return, and it's all or nothing, it applies to every CGT asset the fund holds directly, so an asset currently sitting at an unrealised loss also gets reset down, losing that built-in loss. That trade-off is genuinely worth running past an adviser or accountant before opting in.

🤔 What affected members consider🔗

This is general information, not personal advice, but it's worth knowing the kinds of questions people with large super balances typically raise with their adviser or accountant once Division 296 becomes relevant to them.

The specific topics that tend to come up: whether it still makes sense to hold certain assets inside super given the higher effective rate, keeping enough liquid assets in the fund to cover a Division 296 bill without a forced sale, whether the cost base reset election suits the fund's specific asset mix, and how contribution strategy changes (if at all) once someone's balance is well past $3 million, since super can remain tax-effective depending on someone's marginal tax rate outside it.

🗓️ Key dates and deadlines🔗

❓ Frequently asked questions🔗