Key Highlights

• It applies from the 2026–27 income year, beginning on 1 July 2026.

• An additional tier begins above $3 million, with a further tier applying above $10 million.

• No. The enacted approach uses adjusted realised taxable Earnings rather than the earlier unrealised-gains model.

• The ATO assesses the individual, who may pay personally or elect to release an amount from superannuation.

For years the "$3 million super tax" was a proposal argued over in headlines. It is now enacted law. Division 296 was introduced into the Income Tax Assessment Act 1997 by the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 and applies from 1 July 2026, meaning the first assessments relate to the 2026-27 income year. For members of self-managed super funds (SMSFs) with large balances, the measure adds a new layer of tax on part of their Superannuation earnings. Crucially, the final law differs from earlier drafts in an important way. This article explains the mechanics at a high level; it is general information, not personal tax advice.

What Division 296 is, and when it starts

Division 296 reduces the tax concessions available to individuals whose total superannuation balance (TSB) exceeds a large-balance threshold. It operates from the 2026-27 income year, so the earliest Division 296 assessments arise after funds report for that year. It applies to individuals across the super system, including APRA-fund and SMSF members; SMSF trustees are not singled out, but SMSFs often hold the larger, more complex balances the measure captures.

The two thresholds and the extra tax

The large super balance threshold (LSBT) is $3 million. Where an individual's TSB exceeds $3 million, an additional 15 per cent tax applies to the proportion of their taxable superannuation earnings attributable to the balance above that threshold. This sits on top of the ordinary tax paid within the fund.

A second tier then applies. The very large super balance threshold (VLSBT) is $10 million. For the portion of earnings attributable to a balance above $10 million, a further additional 10 per cent applies, so that top slice effectively carries an extra 25 per cent. Both thresholds are indexed, meaning they may rise in future years.

Realised earnings, not unrealised gains

This is the most important correction to earlier commentary. Much of the original public debate concerned a proposal to tax unrealised gains, notional increases in asset values not yet sold. The enacted Division 296 does not work that way. It calculates "taxable superannuation earnings" from an adjusted amount of the fund's actual, realised taxable income. In other words, the regime is built on realised earnings rather than paper gains. Trustees and members should discard older descriptions of a tax on unrealised gains; they do not describe the law that now applies.

How the tax is assessed and paid

Division 296 is assessed to the individual, not the fund. That distinction shapes the whole process. SMSFs must report each in-scope member's relevant superannuation earnings through the SMSF annual return from 2026-27 onwards. The ATO uses that information, together with data across a member's interests, to work out the earnings attributable to the balance above the threshold and to issue a Division 296 assessment to the individual. The member can then pay the Liability personally or elect to have the amount released from their superannuation. Because the liability lands on the individual while the value sits in the fund, the interaction between personal Cash Flow and fund Liquidity is a practical consideration.

Hypothetical example

Consider "Priya," an SMSF member whose total superannuation balance is $4 million at the relevant measurement point, with taxable superannuation earnings calculated for the year under the Division 296 method. Only the proportion of those earnings attributable to the balance above $3 million falls within the additional 15 per cent charge; the earnings attributable to the first $3 million are not caught by Division 296. She receives an assessment personally and decides whether to pay from her own funds or release the amount from super. This is illustrative only, uses simplified assumptions, and is not advice; actual calculations follow the statutory method and each member's full circumstances.

Important rules and definitions

A few points anchor the regime. The relevant measure is total superannuation balance, which aggregates a person's interests across all their funds, not the balance of a single SMSF. The thresholds of $3 million and $10 million are indexed. The additional tax applies only to the proportion of earnings above the relevant threshold, not to the entire balance or all earnings. And because assessment is at the individual level, a couple running one SMSF are each assessed against their own TSB. None of this changes the ordinary tax already paid within the fund; Division 296 is an additional layer.

Risks and mistakes to avoid

The common misunderstandings are worth naming. First, assuming the tax applies to unrealised gains; it does not under the enacted law. Second, assuming the whole balance is taxed at the higher rate; only the earnings attributable to the excess are. Third, overlooking that the assessment is personal, which can surprise members expecting the fund to simply absorb it. Members should not restructure hastily on the strength of headlines, and any strategy response is a matter for qualified, individually tailored advice, which this article does not provide.

What to watch next

Trustees should follow ATO guidance on Division 296 for SMSFs, including reporting requirements in the SMSF annual return and the mechanics of assessments and elections to release amounts from super. Future indexation of the thresholds, and any refinements in ATO administrative guidance, will also be worth monitoring as the first 2026-27 assessments approach.

The bottom line

Division 296 is law, it starts from 2026-27, and it applies an extra 15 per cent above $3 million and a further 10 per cent above $10 million, calculated on realised earnings and assessed to the individual. Whether it changes any particular member's retirement strategy is a personal question best worked through with appropriate professional advice.