After years of debate and a significant redesign, Division 296 has been legislated and is about to take effect. The new tax on Earnings from large Superannuation balances begins with the 2026–27 income year, making September 2026 a timely moment for trustees to understand how the enacted law actually works, and how it differs from the proposal that first sparked headlines.

When it starts

The tax commences from 1 July 2026, applying from the 2026–27 income year. The first Division 296 assessment applies at 30 June 2027. In other words, the initial measurement period is the coming financial year, with assessments following after it closes.

That timing gives trustees a defined window to get familiar with the mechanics before the first assessments are issued.

The two thresholds

Division 296 uses two thresholds, and both are indexed to inflation. The large superannuation balance threshold is $3 million, and the very large superannuation balance threshold is $10 million.

Because the thresholds are indexed under the legislation, they are designed to rise over time, so fewer people are expected to be drawn in purely by Inflation lifting balances. This indexation is an important feature of the enacted model.

How the rates work

The tax applies to earnings attributable to the relevant band, not to an entire balance. For balances between $3 million and $10 million, earnings in that band are effectively taxed at 30%, comprising the existing 15% concessional rate plus a further 15% under Division 296.

For balances above $10 million, earnings attributable to that portion are effectively taxed at 40%, being the existing 15% plus an additional 25%. The banded structure means the higher rate applies only to earnings linked to the amount above each threshold.

Realised earnings only

One of the most significant features of the enacted law is what it leaves out. The revised model removed the taxation of unrealised capital gains that had featured in the earlier 2023 proposal. Only realised earnings are captured.

This is the key change from that earlier version, which had proposed a single $3 million threshold, taxation of unrealised gains, and a 1 July 2025 start. That model did not proceed in that form, and it is the revised, realised-earnings design that has been legislated.

Who pays, and how

The tax is assessed to the individual, not to the fund itself. Individuals can elect to have the amount released from their super fund to pay it, a mechanism similar to the existing Division 293 arrangement.

The relevant balance test uses the higher of the individual's total superannuation balance at the start and end of the financial year. A special option applies for the 2026–27 year, using the position at 30 June 2027. Because the test looks across the year, the timing and measurement of balances can matter.

What trustees may wish to consider

For most people setting up or running a fund, balances sit well below $3 million, so Division 296 may not apply at all. For those with larger balances, the interaction between realised earnings, the release election and how balances are measured could Warrant closer attention.

Liquidity is one practical dimension, since a Liability assessed to the individual may need to be funded. How any of this applies depends on individual circumstances, and professional advice may be appropriate.

In summary

The enacted Division 296 introduces an effective 30% rate on earnings for balances between $3 million and $10 million, and 40% above $10 million, from the 2026–27 year, with indexed thresholds, taxation of realised earnings only, and assessment to the individual. Understanding these mechanics, rather than the superseded 2023 proposal, is what matters now.