Division 296 super tax passes Parliament – Key details explained

Following the Senate’s passage of the Division 296 legislation, individuals with large superannuation balances should review their current strategies to account for the new personal tax liabilities taking effect on 1 July 2026.

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At a glance – Division 296 Super Tax
From 1 July 2026, individuals with total superannuation balances above $3 million may pay an additional personal tax on super earnings.

• Applies across all super funds, including SMSFs
• No cap on super balances – but reduced tax concessions on higher balances
• Earnings above $3m nominally taxed up to 30%, and above $10m up to 40%
• Tax is assessed to you personally, not the fund

Most Australians won’t be affected — but those nearing the thresholds should review their long‑term strategy.

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The Federal Government’s proposed superannuation tax changes introducing Division 296 have now passed the Senate through the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 and Superannuation (Building a Stronger and Fairer Super System) Imposition Bill 2026.

Once enacted, the legislation will introduce additional tax on superannuation earnings for individuals with very large superannuation balances. While the new rules are expected to affect only a relatively small proportion of Australians today, they are particularly relevant for individuals and self-managed super fund (SMSF) members with balances approaching or exceeding $3 million.

Division 296 will be inserted into the Income Tax Assessment Act 1997 (ITAA 1997) and will apply from 1 July 2026.

In this article, we explain how the new rules work, how the tax is calculated, and what it may mean in practice.

What is Division 296?

Division 296 introduces an additional personal tax on earnings attributable to the portion of an individual’s total superannuation balance (TSB) above certain thresholds.

Key features include:

• the tax is assessed to the individual, not the super fund.
• it applies to the individual’s total superannuation balance across all super funds, including SMSFs and APRA regulated funds.
• it applies in addition to the tax already paid by super funds on investment earnings.

Importantly, Division 296 does not cap the amount someone can hold in superannuation. Instead, it reduces the level of tax concession available on earnings attributable to higher balances.

Key thresholds and tax rates

The legislation introduces two additional tax layers.

Total super balance	Additional Division 296 tax
Up to $3 million	No additional tax
Large Superannuation Balance Threshold ($3m – $10m)	Additional 15% on the proportion of earnings attributable to this band
Very Large Superannuation Balance Threshold (Above $10m)	Additional 10% on the proportion attributable to this band

Because super funds already pay tax of up to 15% on earnings, the combined effect is that:

• earnings attributable to balances above $3 million may be taxed at a nominal rate of up to 30%; and
• earnings attributable to balances above $10 million may be taxed at a nominal rate of up to 40%.

Both the Large and Very Large Superannuation Balance thresholds will be indexed over time, although this will be applied using fixed incremental adjustments rather than continuous increases.

How is Division 296 tax calculated

Division 296 tax is broadly determined by:

• calculating the individual’s super earnings for the year, and
• determining the proportion of the individual’s total super balance above the relevant thresholds.

The additional tax rates are then applied to that proportion of earnings.

From the 2027–28 year onwards, the proportion is based on the higher of the individual’s total super balance at 1 July or 30 June for the year.

A special rule applies in the first year only (2026–27), where Division 296 eligibility is determined from the individual’s TSB only at 30 June 2027.

Division 296 earnings – what counts as “earnings”?

For Division 296 purposes, the concept of “earnings” is different to reviewing changes in account balances or asset values.

Broadly, Division 296 earnings are based on realised investment income earned within a person’s superannuation interests, with a number of specific adjustments required under the legislation.

How earnings are determined

For individuals that are members of large APRA-regulated funds, earnings will be allocated in a “fair and reasonable” way between members. Further detail is expected to be provided in the yet to be released regulation

For individuals with an SMSF, Division 296 earnings are derived by starting with the fund’s taxable income and then making certain adjustments. In broad terms, this involves:

• excluding concessional contributions, as these are contributions to the fund rather than investment earnings
• excluding non‑arm’s length income (NALI), as this income is already taxed at the highest rate and does not receive concessional treatment
• adding back exempt current pension income (ECPI), so that earnings supporting pension interests are treated consistently with accumulation interests
• adding back pooled superannuation trust earnings, where applicable
• including other relevant investment income, such as realised capital gains, interest, dividends and rent

Importantly, unrealised gains are not included. Changes in asset values alone do not form part of Division 296 earnings. This reduces the likelihood of liquidity pressure for SMSFs holding illiquid assets such as property or unlisted investments.

Where the fund has elected to apply the 30 June 2026 CGT reset under the transitional rules, realised capital gains for Division 296 purposes may need to be recalculated using the reset value rather than the original tax cost base.

Transitional rule – resetting asset cost bases at 30 June 2026

The legislation includes a transitional rule for SMSFs and small APRA funds.

Trustees may elect to reset the cost base of the Fund’s CGT assets to market value at 30 June 2026 for Division 296 purposes.

Key features of the election include:

• it is optional
• it must apply to all CGT assets held directly by the fund
• it is irrevocable once made
• it must be made by the due date of the fund’s 2026–27 tax return

This ensures that capital growth accrued before the commencement of the regime is not included in Division 296 earnings.

Modified capital gains – example

An SMSF purchased an asset for $850,000.  At 30 June 2026, the asset is valued at $1.9 million.
The asset is later sold for $2.3 million.

If the fund makes the transitional election:

• the ordinary income tax calculation still uses the $850,000 cost base
• the Division 296 calculation measures the gain from the $1.9 million reset value

Only the $400,000 increase after 30 June 2026 is included in Division 296 earnings.

Apportioning earnings to individuals

Once a fund’s total Division 296 earnings are calculated, those earnings must be attributed to the relevant members of the fund. The legislation does not currently prescribe a specific methodology for this apportionment, and further detail is expected to be provided in accompanying regulations, which have yet to be released.

Based on existing guidance, it is expected that SMSFs will generally require a special actuarial certificate to determine the appropriate allocation of earnings between members, particularly where the fund has multiple members or pays pensions.

Multiple superannuation interests

For individuals with more than one superannuation interest, for example, an SMSF and an industry or retail fund, Division 296 earnings are calculated across all super interests combined.

This includes earnings from:

• accumulation accounts
• retirement phase pensions
• death benefit pensions, including reversionary pensions

Each super fund calculates the earnings attributable to that interest, and those amounts are then aggregated to determine the individual’s total Division 296 earnings for the year.

Certain superannuation interests are excluded from Division 296 earnings under specific rules (for example, some constitutionally protected funds or non‑complying funds). However, even where earnings from an interest are excluded, the value of that interest will generally still be counted when determining the individual’s total superannuation balance.

What happens in a year with negative earnings?

If an individual’s Division 296 earnings for a year are negative, no Division 296 tax is payable for that year.

However, losses:

• are not refunded, and
• cannot be carried forward to offset Division 296 tax in future years

This reflects the design of Division 296 as an additional tax on earnings in profitable years, rather than a stand‑alone profit and loss regime.

How the tax is paid

As previously mentioned, Division 296 tax will be assessed directly to the individual by the ATO.

Once assessed, individuals may:

• pay the tax personally, or
• elect for the amount to be released from their super fund

This mechanism is similar to the existing process for Division 293 tax.

Worked examples

The following simplified examples illustrate how Division 296 is calculated in practice. These are intended to help explain the mechanics of the tax and use rounded figures for ease of understanding.

Example 1 – Calculation of Division 296 tax liability on TSB above the Large Superannuation Balance Threshold

Facts:

• Alex is the sole member/trustee of her SMSF, Alex Superannuation Fund (ASF).
• Alex has no other superannuation accounts outside of his SMSF.
• At 1 July 2027 Alex has a TSB of $2.5 million and at 30 June 2028 he has a TSB of $3.8 million.
• For the 2028 financial year, ASF has taxable income of $190,000.
• The fund’s taxable income includes:
  • Personal concessional contributions for Alex of $30,000.
  • Ordinary realised capital gains of $50,000.
• ASF opted in for the Division 296 transitional cost base reset by the due date of its 2026 income tax return.  As a result, ASF has adjusted realised capital gains of $10,000 at 30 June 2028 for the purposes of determining Division 296 earnings.

Calculations:

The ATO uses Alex’s highest TSB for the 2027/2028 financial year, being $3.8 million.  This TSB exceeds the Large Superannuation Balance threshold, and he will be assessed for Division 296 tax.

Determine Division 296 earnings for ASF:

ASF taxable income	$190,000
Less: concessional contributions	($30,000)
Less: ordinary realised capital gains	($50,000)
Add: adjusted realised capital gains	$10,000
ASF Division 296 earnings	$120,000

Division 296 tax calculation for Alex:

	>$3 million
Proportion of balance exceeding Large Superannuation Balance Threshold ($3.8m – $3m) / $3.8m x 100 = 21.05%	$800,000
Division 296 earnings (21.05% of $120,000)	$25,260
Division 296 tax (15%) payable	$3,789

The ATO issues a Division 296 tax notice of assessment to Alex for $3,789.  He has the option to pay this tax from personal monies or make an election for his SMSF to pay the tax on his behalf.

Example 2 – Calculation of Division 296 tax liability on TSB above the Very Large Superannuation Balance Threshold

Facts:

• Jo and Chris are members/trustees of their SMSF, J & C Superannuation Fund (JCSF).
• In addition to the SMSF, Jo holds an accumulation account with Australian Retirement Trust (ART).
• Jo is 66 and is drawing a pension from JCSF. Chris is 61 and still working.
• At 30 June 2027 Jo has a TSB of $12 million, being $10 million in JCSF and $2 million with ART. Chris has a TSB of $2.5 million in JCSF.
• Of Jo’s $10 million balance in JCSF, $2 million is in an account-based pension and the remainder in accumulation. Chris’ balance is in accumulation phase.
• For the 2027 financial year, JCSF has taxable income of $1,000,000. Jo’s ART account has earnings of $150,000.
• JCSF’s taxable income includes:
  • Personal concessional contributions for Chris and Jo of $60,000.
  • Ordinary realised capital gains of $200,000.
  • ECPI of $300,000.
• JCSF did not opt in for the transitional CGT cost base reset by the due date of its 2026 income tax return.  Adjusted realised capital gains for JCSF would remain at $200,000 for the purposes of determining Division 296 earnings.

Calculations:

The ATO notifies Jo that her TSB at 30 June 2027 exceeds the Very Large Superannuation Balance threshold, and she will be assessed for Division 296 tax. As Chris is under the Large Superannuation Balance threshold, he is not liable for Division 296 tax.

Determine Division 296 earnings for JCSF:

JCSF taxable income	$1,000,000
Less: concessional contributions	($60,000)
Add: ECPI	$300,000
JCSF Division 296 earnings	$1,240,000
JCSF Division 296 earnings (80% of $1,240,000)*	$992,000
Add: ART Division 296 earnings	$150,000
Total Division 296 earnings	$1,142,000

*JCSF obtains a special actuarial certificate which determines 80% of the Division 296 earnings are attributable to Jo. Therefore, Jo’s Division 296 earnings in JCSF are $992,000 (80% of $1,240,000).

Division 296 tax calculation for Jo:

	>$3 million	>$10 million
Proportion of balance exceeding the Large Superannuation Balance Threshold ($12m – $3m) / $12m x 100 = 75% Proportion of balance exceeding the Very Large Superannuation Balance Threshold ($12m – $10m) / $12m x 100 = 16.67%	$9,000,000	$2,000,000
Division 296 earnings (75% of $1.142 m) (16.67% of $1.142m)	$856,500	$190,371
Division 296 tax payable	$128,475 (15%)	$19,037 (10%)

The ATO issues a Division 296 tax notice of assessment to Jo for $147,512.  She has the option to pay this tax from personal monies or make an election for one of her super funds to pay the tax on her behalf.

What Division 296 means for clients

For most Australians, the new rules will have no immediate impact.

However, individuals with super balances approaching or exceeding $3 million may wish to review longer term strategies, including:

• Modelling the potential effect of Division 296 can assist with estimating the individual’s overall tax position, including the effective marginal tax rate that would apply to superannuation earnings under the new rules;
• It may be prudent to assess whether holding certain assets outside of the superannuation environment (either personally, or through entities such as companies or trusts) would result in a more favourable income tax outcome compared to retaining those assets within superannuation;
• This may be a good opportunity to reconsider existing asset ownership structures or estate planning strategies;
• For those individuals who wish to avoid or reduce Division 296 tax, they may need to consider withdrawing or restructuring assets to reduce their TSB below the relevant thresholds before 30 June 2027;
• It will be crucial for timely lodgment of the SMSF 2026 income tax return if the fund intends to opt in for the special CGT relief;
• For trustees wanting to utilise the special CGT relief, it will be important to review what the adjustments will look like for all assets in the fund. Particularly those that may currently be in an unrealised loss position;
• SMSFs may access the special CGT relief even where no member currently has a TSB above $3 million. This ensures that smaller funds are not excluded from using transitional mechanisms in the future;
• The valuation of SMSF assets will be critical in the financial year ended 30 June 2026 for Trustees wanting to use the special CGT relief and in future years for the determination of an individual’s TSB, particularly for funds invested in property and unlisted entities;
• SMSF trustees may need to prepare for increased compliance costs for the fund. Particularly regarding adviser fees, accounting fees, valuation costs or fees to obtain the special actuarial certificate (to determine allocation of Division 296 earnings between members).

Even with these changes, superannuation remains one of the most tax-effective retirement savings vehicles available. For most people with total super balances under $10 million, it will continue to make sense to accumulate wealth in super. However, each person’s circumstances are different, and you should seek advice before making any changes.

Need advice?

If you would like to understand whether Division 296 may affect you, or discuss strategies for managing larger super balances, please contact the Vincents team.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.