Division 296 Super Tax: What You Need to Know Ahead of 1 July 2026

29 May

After months of public debate and consultation, significant changes to the taxation of high superannuation balances are approaching.

The government has now legislated Division 296, which is scheduled to apply from 1 July 2026. While the measures are targeted at individuals with large super balances, understanding the framework early is important — particularly if your balance is approaching the relevant thresholds.

Below is an overview of how the rules are designed to operate under the legislation as currently enacted, and what this could mean for you.

How We Reached This Point

When Division 296 was first announced in 2023, it attracted widespread attention and concern.

The initial proposal included two controversial elements:

Taxation of unrealised investment growth (often referred to as “paper gains”), and
A fixed $3 million threshold with no indexation

These elements raised concerns around fairness, predictability and long‑term retirement planning, particularly for Australians nearing or in retirement.

Following consultation and industry feedback, the final legislation adopted a more conventional structure, focusing on earnings calculated under legislated formulas rather than direct taxation of unrealised asset values.

What the Current Rules Provide

Under the legislation as passed, key features include:

The new tax applies to earnings attributable to balances above defined thresholds
Earnings are calculated and reported to the ATO using legislated methods, rather than by individuals
A $3 million lower threshold, which is intended to be indexed over time
A second threshold of $10 million
A start date of 1 July 2026
Inclusion of defined benefit interests, ensuring consistent treatment across fund types

How Division 296 Is Intended to Apply

Division 296 does not apply a higher tax rate to an entire super balance. Instead, higher rates apply only to the portion of earnings attributable to balances above the relevant thresholds.

In broad terms:

Earnings attributable to balances up to $3 million continue to be taxed under existing superannuation rules (generally up to 15%)
Earnings attributable to the portion between $3 million and $10 million may be taxed at higher effective rates (up to 30%)
Earnings attributable to balances above $10 million may be subject to a higher effective rate (up to 40%)

If your balance is only marginally above $3 million, the impact is likely to be limited, as only a small portion of earnings falls within the higher tax bands.

Who is Affect?

Division 296 applies at the individual level and only where total superannuation balances exceed $3 million.

Key points to note:

The threshold applies per individual, not per super fund
Couples are assessed separately
Holding assets above $3 million inside an SMSF does not automatically trigger the tax
The first assessment is expected to be based on balances as at 30 June 2027

How the Tax Is Assessed and Paid

Individuals are not required to calculate or self‑assess Division 296 tax.

The process is expected to work as follows:

1. Super funds report balances and earnings to the ATO

2. The ATO determines whether Division 296 applies

3. A notice of assessment is issued if additional tax is payable

If a liability arises, individuals can either:

Pay the amount personally, or
Elect to have the amount released from superannuation

Looking Ahead

For most Australians, Division 296 will have no impact.

For those with higher balances, it may prompt:

Additional tax on a portion of superannuation earnings
A review of investment structures and contribution strategies
Broader retirement planning considerations over time

The rules are scheduled to apply from 1 July 2026, with the first assessments expected during the 2027–28 financial year.

Get Advice Before Making Changes

Decisions such as withdrawing funds from super or restructuring investments can have lasting consequences, including:

Inability to recontribute due to contribution caps
Loss of concessionally taxed growth
Reduced long‑term retirement outcomes

Tailored advice before taking action can help manage these risks.

Final Thoughts

Division 296 represents a significant change in how very large superannuation balances are taxed. While more targeted than earlier proposals, it remains complex and highly individual in its impact.

If you are unsure whether these rules may apply to you, or how best to respond, we can help you assess your position and plan with confidence ahead of 1 July 2026.

Martha Martha