In March 2026, the Government passed the Division 296 superannuation tax measures, which are intended to apply from 1 July 2026 to individuals with a total superannuation balance above $3 million at the end of the financial year. The legislation also introduces a further reduction in tax concessions for individuals with very large balances above $10 million.
What is Division 296 tax?
Division 296 tax is an additional tax that applies to certain superannuation earnings for individuals whose total super balance exceeds the relevant thresholds.
Importantly, this is not a tax on the total value of your superannuation balance itself. Instead, it is an additional tax on part of the earnings attributed to members with higher super balances.
Although the tax is assessed to the individual, there will be an option for the liability to be paid personally or from superannuation.
Why has this tax been introduced?
The Government’s stated intention is to reduce the tax concessions available to individuals with very large superannuation balances.
Under these changes, superannuation will become a less concessional tax environment for those with balances above $3 million, and particularly for those above $10 million.
That said, superannuation may still remain an effective long term tax structure depending on your broader financial position, investment strategy, retirement needs and estate planning objectives.
How is the tax calculated?
The tax is calculated using the following formula:
15% x the proportion of an individual’s super balance above $3 million x earnings
Plus
10% x the proportion of an individual’s super balance above $10 million x earnings
The proportions are based on the member’s higher super balance at either the start or end of the financial year.
There is a special rule for the first year of operation, being the 2027 financial year, where only the end of year balance will be used.
The thresholds are also expected to be indexed in line with inflation in specified increments.
What counts as earnings?
For Division 296 purposes, earnings include investment income such as:
- rent
- dividends, including franking credits
- trust distributions
- realised capital gains, after applying any available capital gains tax discounts
Deductible expenses are taken into account in working out the final earnings figure.
Unlike earlier draft proposals, unrealised capital gains are not included, which is a significant change.
Pension phase superannuation interests are also included when determining whether an individual exceeds the $3 million or $10 million thresholds.
Each superannuation fund will need to determine the earnings attributed to each member. In many cases, particularly for SMSFs, this may require actuarial input.
When will the tax apply?
Superannuation funds and individuals will continue lodging their annual tax returns in the usual way.
Once the ATO has received the relevant data, it will issue an assessment to individuals who are liable for Division 296 tax. This assessment will be separate from the usual superannuation tax obligations.
At that point, the individual can either pay the tax personally or elect for their super fund to pay it on their behalf.
Valuation relief for assets held at 30 June 2026
The Government has recognised that some assets held in superannuation may already have built up capital growth before the new rules begin.
To address this, SMSFs may be able to opt in to a transitional relief measure that resets asset values to 30 June 2026 for Division 296 purposes. This means only growth after that date would be taken into account under the new rules.
It is important to note that this appears to be an all in election across all fund assets. In other words, trustees may not be able to select only certain assets for relief.
To access this concession, an SMSF will need to make the election when lodging its 2027 SMSF annual return.
Planning considerations
At this stage, some of the practical detail around how the new rules will operate is still being worked through.
As the first year is based on the balance at 30 June 2027, there may be an opportunity to review your position and consider whether any action is appropriate.
Planning considerations may include:
- taking no action and accepting the additional tax
- reviewing whether superannuation remains the most suitable tax structure overall
- considering whether withdrawals from super may reduce exposure to the new tax
- understanding whether any withdrawal strategy could trigger capital gains tax or other transaction costs within the fund
- assessing future pension payment and cash flow requirements
- reviewing any impact on estate planning arrangements
Contact Details
We recommend obtaining advice before making any changes, as the best approach will depend on your personal circumstances.
We will continue to keep clients informed as further guidance is released.
If you would like to discuss how these changes may affect you, please contact Michael Wang on (08) 8299 8888.
