Division 296 Is Now Law – Here’s What It Means for Your Wealth Planning
If your super balance is above $3million, or getting close to $3million, then it’s wise to consider how the tax may impact you, or if there are strategies available to structure your superannuation more tax effectively.
The Federal Government’s updated superannuation tax on high‑balance accounts has now passed Parliament and is officially law. Starting 1 July 2026, individuals with a Total Super Balance (TSB) above $3 million will pay a new tiered tax on their realised earnings only. The final design also removes tax on unrealised gains, introduces indexation for the $3m and $10m thresholds, and boosts support for low‑income earners.
What is Division 296?
Division 296 is a new tax aimed at reducing the level of tax concessions available to people with very large superannuation balances, defined as having more than $3 million in total super across all their funds. It works by applying extra tax to part of the investment earnings generated by the portion of a person’s balance above that $3 million threshold. The further your balance sits above that line, the larger the share of earnings that may be taxed.
Importantly, Division 296 is not:
- a cap on how much someone can hold in super
- a tax on the balance itself
- a mechanism that lets people withdraw “excess” super early
Instead, it is a personal tax charged to the individual and not their fund even though it’s calculated based on the fund’s earnings. Members can choose to pay the tax from their super if they prefer, including those who are not yet old enough to access their super under normal conditions.
Key Updates
Tax applies only to realised earnings: the new Division 296 tax excludes unrealised capital gains. Only actual, realised earnings will be subject to the additional tax.
Two indexed thresholds: $3m and $10m:
- Large Balances ($3 million threshold) → earnings above this taxed at 30% (existing 15% + additional 15%).
- Very Large Balances ($10 million threshold) → earnings above this taxed at 40% (existing 15% + additional 25%).
Both thresholds will be indexed in line with the Transfer Balance Cap/CPI, preventing bracket creep.
Start date confirmed: 1 July 2026: the new rules commence 1 July 2026, with the first assessments expected in the 2027–28 financial year.
Defined benefits schemes included: the government has confirmed it will incorporate defined benefit schemes to ensure consistent treatment, with technical details still being refined.
Capital Gains Relief for Pre-2026 Assets – Opt-In Required
A transitional relief mechanism is available for SMSFs holding assets with significant unrealised gains. By resetting asset cost bases to their 30 June 2026 market values for Division 296 purposes only, only gains realised after that date will be subject to the new tax. This relief is not automatic – trustees must opt in via an approved form lodged by the due date of the 2026-27 annual return and missing that deadline is likely to be irreversible. The opt-in applies at fund level rather than asset by asset, so funds with investments in a loss position should consider carefully, as those cost bases will also be reset. Any SMSF can opt in, even where no member currently exceeds $3 million, making it worth considering for funds with large, accrued gains where members may approach the threshold in future.
What This Means for You
Realised vs unrealised earnings
Only genuine earnings matter, meaning no tax is triggered merely by increases in the value of assets you haven’t sold. This greatly reduces liquidity risk for SMSFs holding property, unlisted assets or concentrated equity positions.
Tiered tax impact
If your TSB is between $3m–$10m, only the earnings attributed to that slice are taxed at 30%. For TSB above $10m, earnings on that portion attract 40%. This is not a tax on your balance, only on earnings attributable to the portion above the threshold(s).
More time to prepare
With a delayed start date, individuals and advisers have additional time to consider: asset realisation strategies, pension phase structuring, possible CGT cost‑base adjustments; and long‑term contributions planning.
Questions You May Be Asking
Will this affect my super contributions or retirement plan?
If your TSB exceeds $3 million, Division 296 will apply to a portion of your earnings. Precise impacts depend on your fund structure, investment mix and projected growth. Some technical details are still pending ATO guidance (particularly treatment of cost‑base resets and defined benefit calculations).
Are there strategies to manage tax exposure before 1 July 2026?
Yes, strategic planning may be beneficial, including reviewing: asset mix and liquidity, timing of disposals, contribution strategies, and the appropriateness of SMSF vs APRA‑regulated funds. However, now that legislation is finalised, strategies should reflect the confirmed rules.
Do I need to take action now?
No immediate reporting is required, however early planning should be undertaken to: review projected balances near thresholds consider asset cost-base resetting for Div 296 purposes, and review your overall strategy objectives.
Next Steps
- Review your current balance and long‑term projections.
- Meet with your adviser to stress‑test your financial plan under the new Division 296 framework.
- Stay updated as the ATO releases administrative guidance through 2026–27.
We will continue to update you as more implementation detail becomes available.
If you’d like a personalised assessment of how Division 296 may affect your retirement strategy, our team is here to help.
