Key Takeaways

  • Division 296 tax passed Parliament on 10 March 2026 and takes effect from 1 July 2026, applying to the 2026–27 income year onward.
  • It imposes an additional 15% tax on earnings attributable to the portion of total super balances above $3 million, and 25% on the portion above $10 million.
  • The final legislation taxes realised earnings only — not unrealised gains — a significant change from the original 2023 proposal.
  • Both thresholds are indexed to CPI in $150,000 and $500,000 increments respectively.
  • A CGT cost base reset to market value as at 30 June 2026 is available, giving affected individuals an important planning window right now.

A Turning Point for High-Balance Super Accounts

As of 10 March 2026, the Division 296 tax has passed Parliament and will begin applying to earnings from 1 July 2026 — making 2026–27 the first financial year in which it is assessed. If you hold a large superannuation balance or manage an SMSF with significant assets, this is one of the most important developments in Australian superannuation in a generation.

What Is Division 296 Tax?

Division 296 tax is an additional layer on top of the existing 15% rate on accumulation-phase earnings, designed to reduce the concessional tax benefit for those with very large super balances.

The ATO will assess each individual's total super balance at year end. If it exceeds $3 million, the portion of earnings attributable to the amount above the threshold attracts an extra 15% — effectively raising the rate on those earnings to 30%. For the portion above $10 million, the additional rate is 25%, bringing the effective rate to 40%.

Who Pays and How

The individual — not the fund — is personally liable. The ATO will issue an assessment and the individual can pay from personal funds or elect to have the amount withdrawn from their super account. Paying personally preserves the super balance; paying from super reduces it.

The Realised-Earnings Rule: A Critical Revision

The most significant change from the original 2023 proposal is the exclusion of unrealised gains. Early drafts would have taxed increases in balance value even on unsold assets — drawing wide criticism from SMSF trustees holding illiquid property or unlisted investments. The final legislation taxes only realised earnings: dividends, interest, rent, and realised capital gains. Unrealised gains on unsold assets are excluded, though careful attention to the timing of asset sales remains important.

The CGT Reset Opportunity

Affected individuals can elect to reset the cost base of super fund assets to market value as at 30 June 2026. Future capital gains will be calculated from that new base, reducing the amount subject to Division 296 tax on eventual sale. For funds holding long-held appreciating assets — shares bought decades ago or property acquired before recent price rises — this reset can substantially cut the eventual tax liability. Discuss with your accountant whether the election makes sense before the deadline.

Threshold Indexation

A common criticism of the original proposal was that a fixed $3 million threshold would capture a much larger share of the population over time simply through investment returns and inflation. The legislation addresses this by indexing both thresholds to CPI: the $3 million threshold adjusts in $150,000 increments; the $10 million threshold in $500,000 increments. Treasury estimates the tax initially affects roughly 80,000 people — approximately the top 0.5% of super account holders.

Strategies for Those Above $3 Million

Withdrawing Excess Balances

Those aged 60 and retired, or anyone aged 65 or older, may consider drawing down to below $3 million. Withdrawals from super are generally tax-free once a person is aged 60 or over. Withdrawn funds can be held in other structures, though these typically carry higher tax rates on earnings.

Reviewing the Investment Mix

For assets generating significant realised income — high-dividend shares or rental properties — trustees may reconsider the investment mix. The tax does not remove the fundamental advantage of super for most people, but it alters the calculus for high-balance members at the margin.

Contribution Decisions

Those approaching $3 million should weigh further voluntary contributions more carefully. The concessional cap is $30,000 for 2025–26, rising to $32,500 from 1 July 2026. Making additional contributions into a balance already above $3 million grows the taxable portion further.

Division 293 Interaction

High-income earners already paying Division 293 tax — an extra 15% on concessional contributions for those earning above $250,000 — need to factor Division 296 into their broader super tax picture. Multiple layers now apply, making overall strategy more nuanced.