The tax on Australia’s largest Superannuation balances has had one of the longest and most closely watched policy journeys in recent memory. When the measure now known as Division 296 was first announced, it was slated to begin in 2025–26, to capture unrealised gains, and to apply an unindexed $3 million threshold. That original design never took effect in that form. It was revised in late 2025, passed Parliament in March 2026, and the version that is now law looks materially different — and starts a year later than first proposed. For self-managed super fund members with large balances, the result is a genuinely new tax era, complete with a two-tier structure reaching up to $10 million. This article traces the evolution from proposal to law and explains what actually applies. It is general information, not personal advice.

 

Why the headline still says 2025–26

The “2025–26” that attaches to this measure refers to the originally proposed start date, not the law. When the concessional-tax change was first put forward, the plan was to begin from 1 July 2025, tax the movement in a member’s total super balance including unrealised gains, and apply a fixed, unindexed $3 million threshold.

That design attracted sustained debate — particularly over taxing paper gains that had not been cashed in, and over a threshold that would not move with inflation. The proposal was revised in October 2025 before it became law. So while the original timetable pointed to 2025–26, the enacted measure does not apply then.

 

What actually became law

The revised measure passed the House of Representatives on 5 March 2026 and the Senate on 10 March 2026, enacted through the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026.

The law that emerged differs from the first proposal in two decisive ways. It taxes realised earnings, based on an adjusted amount of fund Taxable Income — the inclusion of unrealised gains was removed. And the thresholds are now indexed, so they can rise over time rather than being frozen. The start date moved to 1 July 2026, making 2026–27 the first income year it applies, with first assessments expected after 30 June 2027.

In short: same broad target — very large super balances — but a redesigned mechanism and a later start.

 

The two-tier structure

The defining feature of the new era is that Division 296 is not a single flat surcharge. It has two tiers.

The first tier applies to individuals whose total super balance exceeds $3 million. An additional 15% applies to the Earnings attributable to the portion of the balance above that threshold. Because fund earnings are already taxed at up to 15%, commentators describe the combined effect as roughly 30% on those earnings.

The second tier applies above $10 million. Earnings attributable to the portion of a balance over $10 million attract a further 10% — an extra 25% in total. Commentators describe that combined effect as around 40%. Both thresholds are indexed, so the points at which each tier begins may shift in future years.

 

Who is caught, and how the bill lands

Only individuals with a total super balance above $3 million are affected at all, and only the earnings attributable to the amount above the threshold are taxed — not the entire balance. The measure looks across all of a person’s super interests, not one fund in isolation, and applies whether the money is in accumulation or retirement phase.

The ATO assesses the extra tax to the individual, not to the SMSF. Members can generally elect to release the tax from their super fund(s) to pay it, or pay personally. That keeps the collection mechanism at the individual level while giving members a choice about the source of the payment.

 

A hypothetical worked example spanning both tiers

Consider Beatrix, a hypothetical SMSF member with a total super balance of $12 million at year-end. This example is illustrative only and simplifies the legislated formula.

Suppose her adjusted super earnings for the year are $600,000, a 5% return on $12 million.

The portion between $3 million and $10 million — $7 million — represents about 58% of her balance; the portion above $10 million — $2 million — represents about 17%. Broadly, the earnings attributable to the $3m–$10m band would attract the extra 15%, and the earnings attributable to the amount above $10 million would attract the extra 25% in total. The result is a materially higher effective rate on the earnings tied to her largest balances, assessed to Beatrix personally, payable from super or from outside it. The numbers show how the tiers interact, not any actual liability.

 

What this new era means for SMSF trustees

The shift from an unrealised-gains model to a realised-earnings model changes what trustees watch. Because the tax now follows realised earnings and total super balance at year-end, the timing of asset sales, accurate valuations and clear record-keeping matter. Trustees of funds near $3 million or $10 million generally track each member’s total super balance across all their super and note that both thresholds are indexed. As the assessment lands on the individual, aligning the fund’s reporting with the member’s personal position is part of the new routine. This describes what the law puts on the table, not a recommended response.

 

Key Takeaway

Division 296 travelled a long road: the original 2023 proposal — unrealised gains, unindexed, a 2025–26 start — was revised in October 2025 and did not take effect in that form. The enacted law passed Parliament in March 2026 and applies from 1 July 2026 (first year 2026–27) on realised, indexed earnings. It has two tiers: an extra 15% above $3 million (roughly 30% combined) and a further 10% — an extra 25% in total — above $10 million (roughly 40% combined). The ATO assesses the individual, who can elect to pay from super.