Division 296 Tax Explained: What It Means for Super Balances Over $3 Million

What is the Division 296 Tax?

Division 296 tax is a proposed new rule from the Australian Government that will apply to people with superannuation balances over $3 million. Its aim is to ensure that those with very large super accounts pay a higher tax on their super’s earnings.

Who Will Be Affected?

• Only individuals with more than $3 million in superannuation.
• Most Australians will not be impacted.
• If your super is under $3 million, these changes do not apply to you.

When Does It Start?

• The Division 296 tax is set to begin on 1 July 2026.
• The first assessments will be issued in the 2027–28 financial year.

How Does the Division 296 Tax Work?

The tax uses a two-tier system:

• Between $3 million and $10 million
  Earnings on this portion are taxed at an extra 15%.
• Over $10 million
  Earnings on this portion are taxed at an extra 20%.

What counts as “earnings”?
Under the first Labor proposal, “earnings” were broadly defined and include both realised and unrealised gains. This means you could be taxed not just on money your super fund actually made (like interest or dividends), but also on increases in the value of your investments, even if nothing was sold. This had been controversial and unfair, so the new proposed changes are inline with standard tax law.

The updated earnings proposal would count as income from realised gains, dividends, income etc.

Example: How Division 296 Tax is Calculated

Here’s a simple example to show how the tax works:

Jane is 55 years of age, and she has $12.9 million in her super account balance.

How is this calculated?

• No additional division 296 tax on her balance under $3 million
• 15% tax on the part between $3 million and $10 million
• 20% tax on the part over $10 million

Why Is This Happening?

The government’s goal is to make the superannuation system fairer. While most people use super to save for retirement, some have very large balances that get significant tax breaks. The Division 296 tax is designed to ensure those with the largest super accounts contribute more.

What Can You Do to Prepare?

If your super balance is approaching or above $3 million, there may be strategies to help manage the impact of the new higher super tax:

• Review your super fund structure and investment mix
• Consider withdrawals or contributions before 30 June 2026
• Assess tax efficiency across family members and entities
• Seek advice on asset transfers or SMSF restructuring

Everyone’s circumstances are different, so prior to making any changes you should speak to a financial adviser to explore tailored advice strategies.

Key Points to Remember

• Division 296 tax starts on 1 July 2026.
• Applies only to superannuation balances over $3 million.
• Two tax rates: 15% (over $3m) and 20% (over $10m).
• The rules are still being finalised and may change.

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