Div 296 will impose additional taxation on superannuation balances exceeding $3 million, affecting around 80,000 Australians initially. Earnings attributable to balances between $3 million and $10 million will attract an additional 15% tax, whilst balances above $10 million face an additional 25%. The division 296 tax commences from 1 July 2026, with the first assessments issued after 30 June 2027. This article explains how the div 296 tax is calculated, who it affects, and strategies to manage the potential liability on retirement savings.
What Is Division 296 Tax
Division 296 forms part of the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026, which passed through Parliament on 10 March 2026. The legislation introduces a two-tiered tax structure designed to reduce concessions for individuals holding substantial superannuation balances. Specifically, the Division 296 tax applies to those whose Total Superannuation Balance exceeds designated thresholds at the end of each financial year.
The $3 Million and $10 Million Thresholds
The div 296 tax operates through two distinct balance thresholds. The Large Super Balance Threshold (LSBT) sits at $4.59 million for the 2026-27 financial year. Members whose Total Superannuation Balance exceeds this figure become liable for the additional tax on the proportion of earnings above this amount.
A second tier, the Very Large Super Balance Threshold (VLSBT), is set at $15.29 million for the same period. Balances exceeding this upper threshold are subject to a higher rate of additional taxation. Both thresholds will be indexed annually in line with the Consumer Price Index. The LSBT increases in increments of $229,348.53, whilst the VLSBT adjusts in increments of $764,495.12. This indexation mechanism addresses concerns about bracket creep, preventing more members from falling into higher tax brackets purely due to inflation.
For subsequent years after 2026-27, the assessment considers the greater of an individual’s Total Superannuation Balance either immediately before or at the end of the financial year.
Additional 15% and 25% Tax Rates
The division 296 tax, explained through its rate structure, reveals two additional tax charges layered on top of the existing 15% superannuation tax. Earnings on the portion of a member’s balance between $4.59 million and $15.29 million are subject to an additional 15% tax, bringing the effective tax rate to 30% on those earnings. For amounts exceeding $15.29 million, an additional 25% applies, resulting in an effective tax rate of 40%.
Superannuation funds continue to pay the standard 15% tax on all investment earnings. The Division 296 tax represents a separate, personal liability calculated and assessed by the Australian Taxation Office. Members can elect to pay this liability personally or have it deducted from their superannuation balance.
A major revision from earlier proposals removed the taxation of unrealised gains. The tax now applies exclusively to realised earnings, including interest, dividends, rent, and capital gains from the sale of assets. This change addresses previous concerns about taxing “paper profits” on assets that remain unsold.
When Division 296 Starts (1 July 2026)
The div 296 update confirms implementation from 1 July 2026, with the measure applying to income years starting on that date. The first assessment will be based on superannuation balances and earnings as at 30 June 2027. Accordingly, the first tax bills will be issued during the 2027-28 financial year.
The ATO will issue Division 296 assessments once sufficient information becomes available to calculate individual liability. Payment falls due 84 days after the notice is issued. For members who die during the year, Division 296 applies based on their opening Total Superannuation Balance, though transitional arrangements exempt those who die on or before 30 June 2027.
An Estimated 80,000 Australians are Affected
The division 296 tax will affect approximately 80,000 to 90,000 Australians. This represents fewer than 0.5% of current superannuation account holders. The Assistant Treasurer indicated the change targets less than 0.5% of Australians with superannuation accounts. These individuals hold extremely large super balances well above typical retirement savings levels.
Who Division 296 Affects
Eligibility for Division 296 tax depends entirely on an individual’s Total Superannuation Balance at specific assessment dates. The tax affects members across all fund types, including APRA-regulated funds, SMSFs, and exempt public sector schemes. Foreign superannuation interests remain outside the scope of this measure.
Total Superannuation Balance (TSB) Explained
Total Superannuation Balance represents the sum of TSB values for each Australian superannuation interest an individual holds. For most members, this figure matches the amount shown on annual member statements, or the total when multiple accounts are combined. The TSB calculation includes balances in both accumulation and pension phases.
From 1 July 2026, the definition was modified to ensure annual valuation requirements and to remove the previous link to transfer balance accounts. Specifically, regulations prescribe valuation methods for different superannuation interest types, taking into account the unique features of various products and scheme arrangements.
One notable exclusion applies to certain SMSF members with limited recourse borrowing arrangements established on or after 1 July 2018. The outstanding loan amount previously added to normal super balances will be excluded from TSB calculations for Division 296 tax purposes.
Applies Per Person, Not Per Couple
The $4.59 million threshold operates on an individual basis rather than per household or per fund. Tax is assessed to the individual, aggregating all their superannuation accounts. This structure creates opportunities for couples to plan. A couple can collectively hold up to $9.17 million in superannuation before either partner becomes liable, provided balances are reasonably equal.
Consider a couple where one spouse holds $7 million, whilst the other maintains $2.2 million. Only the partner whose earnings exceed $4.59 million is subject to Division 296 tax on earnings above that threshold. If rebalanced to $4.59 million each, neither would be liable, despite holding identical total household super balances.
Account-Based Pensions vs Defined Benefit Pensions
Defined benefit pensions cannot be measured by actual assets or investment earnings. Instead, these interests are valued through an actuarial valuation method, similar to family law valuations. Earnings calculations consider the movement between closing and opening TSB, adjusted for contributions and withdrawals, with the final result multiplied by a defined benefit reduction factor of 0.825. This factor applies a 17.5% reduction to relevant superannuation earnings for defined benefit interests.
Special rules apply to Commonwealth justices, State higher-level office holders, and Territory Supreme Court judges with defined benefit interests in their respective pension schemes.
SMSF Members and Fund Types
Division 296 tax affects SMSFs at the member level, not evenly across the entire fund. In a two-member SMSF, one person might exceed $4.59 million whilst the other sits below that threshold. Consequently, division 296 could affect only one member despite both being in the same fund.
SMSFs with multiple members must split the Division 296 earnings between members via an actuarial certificate. The allocation is based on each member’s average TSB as a percentage of the total fund. Funds with nil division 296 earnings or no in-scope members need not obtain actuarial certificates.
Certain interests are excluded from the Division 296 regime, including child pensions sourced from death benefits, structured settlement contributions, constitutionally protected funds, certain judicial and public sector pensions, foreign superannuation interests, and non-complying funds.
How Division 296 Tax Is Calculated
The div 296 calculation methodology follows a structured five-step process that determines individual tax liability based on the Total Superannuation Balance and earnings thresholds.
Step 1: Determining Your TSB at Year Start and End
Initially, the assessment requires comparing TSB at both the start and end of the financial year. The higher balance determines whether Division 296 applies and calculates the proportion of the balance subject to tax. For 2026-27 only, the closing balance at 30 June 2027 serves as the sole reference point. This transitional arrangement allows members to withdraw funds before year-end to potentially avoid the tax. From 2027-28 onwards, the higher of opening or closing TSB applies, preventing members from timing withdrawals to circumvent liability.
Step 2: Calculating the Proportion Over Thresholds
The proportion calculation divides the amount exceeding each threshold by the total TSB. For the $4.59 million threshold, the formula is: (TSB – $4.59 million) ÷ TSB. If TSB reaches $7.64 million, the proportion equals 40%. For balances exceeding $15.29 million, a second calculation applies: (TSB – $15.29 million) ÷ TSB. A member with $18.35 million TSB would have 75% of earnings taxed at the lower threshold and 16.67% at the higher threshold.
Step 3: Working Out Superannuation Earnings
Division 296 earnings use a realised-earnings approach rather than the balance-sheet change methodology. The calculation starts with the fund’s taxable income, less assessable contributions, plus net exempt current pension income, plus non-arm’s length income, less ordinary taxable capital gains, plus adjusted taxable capital gains, and plus Pooled Superannuation Trust earnings. Significantly, gross-up franked dividends are included without allowance for franking credits to reduce dividend 296 tax.
Step 4: Applying the Tax Rate
The tax liability multiplies the proportion by earnings, then applies the relevant rate. Earnings attributable to balances between $4.59 million and $15.29 million are subject to a 15% tax. The portion above $15.29 million is subject to an additional 10%.
Adjusted TSB for Contributions and Withdrawals
When calculating earnings, adjustments account for contributions and withdrawals during the year. The formula is: Current Year TSB – Prior Year TSB + Withdrawals – Net contributions. Contributions are measured net of the standard 15% contributions tax.
The Unrealised Gains Problem: Paying Tax on Paper Profits
In contrast to earlier proposals, the revised legislation removed taxation of unrealised capital gains. Division 296 now applies exclusively to realised earnings, including dividends, interest, rent, and realised capital gains. Capital gains receive the standard one-third discount for assets held over 12 months before Division 296 calculations.
Managing Your Division 296 Tax Liability
Several strategies exist to manage div 296 tax liability, though each carries distinct implications requiring careful analysis.
Withdrawing Funds Before 30 June 2027
The transitional arrangement for 2026-27 creates a unique planning window. Withdrawing funds to reduce TSB below $4.59 million by 30 June 2027 can eliminate division 296 tax liability entirely. However, this strategy only works for the first assessment year. From 2027-28 onwards, the higher of the opening or closing balance determines the liability, so withdrawing later in the year generally won’t prevent the tax if the 1 July balance already exceeds the threshold.
Withdrawals may trigger capital gains tax and expose earnings to higher personal tax rates. Members must meet the conditions of release before accessing superannuation.
Payment Options: Personal or From Super
Division 296 tax can be paid personally or via ATO release authority within 60 days, allowing the superannuation fund to release money directly to the ATO. Payment falls due 84 days after the ATO issues the assessment notice. Members not yet eligible to access superannuation can still use the release authority for Division 296 tax payments.
Capital Gains Relief for Pre-2026 Assets
SMSFs can elect to reset the cost base of all assets to market value at 30 June 2026 for division 296 purposes. This election applies to all assets, not selectively, and becomes irrevocable once made. The election must be lodged by the 2026-27 annual return due date.
Industry and retail fund members receive phased relief: 2026-27 taxes only 20% of capital gains, increasing to 40% in 2027-28, 60% in 2028-29, and 80% in 2029-30.
When to Seek Professional Advice
The net position between the division 296 tax avoided and the tax costs of withdrawal requires careful modelling. Professional advice helps evaluate optimal superannuation levels, asset restructuring between funds, and the timing of disposals.
Conclusion – Division 296
Division 296 represents a substantial shift in Australia’s superannuation taxation framework, affecting approximately 80,000 individuals with balances exceeding $4.59 million. The two-tiered structure imposes an additional 15% tax on earnings between $4.59 million and $15.29 million, whilst balances above the upper threshold are subject to an additional 25%. Notably, the tax applies exclusively to realised earnings, addressing earlier concerns about unrealised gains. Members approaching these thresholds should carefully evaluate their circumstances, particularly before 30 June 2027, when the transitional window closes. Professional guidance becomes essential to balance division 296 liability against withdrawal costs, ensuring optimal retirement outcomes whilst maintaining compliance with this legislative change.
When does the Division 296 tax come into effect?
Division 296 tax begins on July 1, 2026, with the first assessment based on superannuation accounts and earnings for the fiscal year ending June 30, 2027. The first tax bills will be issued during the 2027-28 financial year, with payment due 84 days after the ATO issues the assessment notice.
What are the balance thresholds that trigger Division 296 tax?
The Large Super Balance Threshold is set at $4.59 million for the 2026-27 financial year, whilst the Very Large Super Balance Threshold sits at $15.29 million. Division 296 tax begins on July 1, 2026, with the first assessment based on superannuation accounts and earnings for the fiscal year ending June 30, 2027.
Can I pay the Division 296 tax from my superannuation balance?
Yes, you can choose to pay the Division 296 tax personally or use an ATO release authority within 60 days, which allows your superannuation fund to release money directly to the ATO. This option is available even if you haven’t yet met the conditions of release to access your superannuation.
Does Division 296 tax apply to couples or individuals?
The tax applies on an individual basis, not per household or per fund. Each person has their own $4.59 million threshold, meaning a couple can collectively hold up to $9.17 million in superannuation before either partner becomes liable, provided balances are reasonably equal between them.
Can I reset the cost base of my SMSF assets to avoid Division 296 tax on pre-2026 gains?
SMSFs can elect to reset the cost base of all assets to market value at 30 June 2026 for Division 296 purposes. However, this election must apply to all assets (not selectively), becomes irrevocable once made, and must be lodged by the 2026-27 annual return due date.