Division 296 Tax: What the New Super Tax on Balances Over $3 Million Means for You
The Bill Is Moving Through Parliament
The Treasury Laws Amendment Bill proposing Division 296 has passed the House of Representatives and is now before the Senate. If it passes in its current form, an additional 15% tax will apply to superannuation earnings on balances exceeding $3 million, starting from the 2026-27 financial year.
This affects a relatively small number of Australians right now (roughly 80,000 based on current ATO data), but the $3 million threshold is not indexed to inflation. Over time, more people will cross it.
How the Tax Works
Division 296 calculates the portion of your super earnings attributable to balances above $3 million and applies an additional 15% tax on those earnings.
The formula is straightforward:
- Calculate your total super earnings for the year (change in balance, adjusted for contributions and withdrawals)
- Determine the proportion of your balance above $3 million
- Apply 15% tax to that proportional share of earnings
Example: If your total super balance is $4 million and your earnings for the year are $400,000, then 25% of your balance ($1 million of $4 million) is above the threshold. The additional tax applies to 25% of earnings: $100,000 x 15% = $15,000 additional tax.
Combined with the existing 15% tax on super earnings, the effective rate on earnings above $3 million becomes 30%, the same as the company tax rate.
The Unrealised Gains Problem
One of the most controversial aspects of Division 296 is that it taxes unrealised capital gains. If your super balance grows because asset values increase (even if you haven’t sold anything), that growth counts as “earnings” for the purpose of this tax.
This creates a potential issue for members with illiquid assets like property or unlisted shares in their SMSF. The tax liability could arise even when there’s no cash available to pay it.
However, the legislation does allow negative earnings in one year to be carried forward and offset against future earnings, providing some protection against volatility.
Who Should Be Planning Now
Even if your super balance is well below $3 million today, it’s worth considering if growth and contributions could push you above the threshold in coming years.
People who should be actively planning include:
- Current balances above $2.5 million who could cross $3 million within a few years
- SMSF members with concentrated property holdings who may face liquidity challenges
- Business owners approaching retirement who plan to sell a business and contribute to super
- Anyone with large unrealised gains in their super portfolio
Strategies to Consider
Several strategies may help manage the impact of Division 296:
Rebalancing between super and non-super structures. For some, holding certain assets outside super (in a family trust or personal name) may be more tax-effective once the additional 15% applies.
Withdrawing to below the threshold. If you’re over 60 and in retirement, withdrawals from super are tax-free. Drawing down to stay below $3 million could avoid the additional tax, but this needs to be weighed against the benefits of keeping money in the super environment.
Reviewing asset allocation. Switching from high-growth assets to income-producing investments within the portion above $3 million could reduce unrealised gains exposure.
Timing contributions carefully. If you’re close to the threshold, the timing and size of future contributions matters more than before.
Don’t React Too Early
The Bill hasn’t passed the Senate yet, and amendments are possible. Making major changes to your super structure based on proposed legislation carries risk. But having a plan ready for different scenarios is sensible.
Get Expert Advice
Division 296 sits at the intersection of super, tax, and investment strategy. Getting it right requires advice that considers your full financial picture.
Find a financial adviser or accountant on WealthWorks who specialises in high-balance super strategies and can help you prepare before July 2026.
Frequently Asked Questions
What is the Division 296 tax?
It's an additional 15% tax on super earnings attributable to balances above $3 million. Combined with the existing 15% tax on super earnings, the effective rate on earnings above the $3m threshold becomes 30%.
When does Division 296 start?
The tax is proposed to apply from the 2026-27 income year, starting 1 July 2026. The Bill has passed the House of Representatives and is currently before the Senate.
Does the $3 million threshold include my pension balance?
Yes. Your total superannuation balance across all funds, including accumulation and pension accounts, is counted toward the $3 million threshold.
