A significant change to how large Superannuation balances are taxed took effect on 1 July 2026. Division 296 is now law, applying an additional tax to Earnings attributable to the part of an individual’s super above $3 million. For self-managed super fund members with sizeable balances, it is the most consequential SMSF tax change in years — and, importantly, it is no longer a proposal to keep an eye on. It was enacted through the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 after passing the House of Representatives on 5 March 2026 and the Senate on 10 March 2026. This explainer sets out how Division 296 works as enacted, who it affects, and what a balance above $3 million could mean in practice. It is general information, not personal advice.

 

What Division 296 is

Division 296 imposes an extra 15% tax on the earnings attributable to the portion of a person’s total super balance that exceeds $3 million. It sits on top of the tax the fund already pays.

Two features of the enacted design matter most. First, it is levied on realised earnings — based on an adjusted amount of fund taxable income. The version many people remember from the original 2023 announcement, which would have captured unrealised gains on paper, was removed in the revised measure. Second, the $3 million threshold is indexed, so it may rise over time rather than being permanently fixed.

The tax is calculated by reference to total super balance across all of a person’s super interests, not fund by fund, and it applies whether the money is in accumulation or retirement phase.

 

Why it matters

Superannuation earnings inside a fund are already taxed — up to 15% in accumulation phase, and at 0% for retirement-phase Assets under Exempt Current Pension Income. Division 296 adds a further layer on top of the concessionally taxed earnings that relate to the balance above $3 million.

Because fund earnings are already taxed at up to 15%, commentators generally describe the combined effect as roughly 30% on the affected earnings. That is still below the top marginal personal rate, but it narrows the tax advantage of holding very large balances inside super. For SMSF members, whose funds often hold concentrated assets such as property or a parcel of shares, it is a reason to understand exactly how the measure is calculated.

 

Who is affected

Division 296 applies to individuals whose total super balance exceeds $3 million. The great majority of Australians are well below that figure and are unaffected.

Only the earnings attributable to the portion above $3 million are subject to the extra tax — not the whole balance. A member whose total super balance is $3.2 million has only the earnings relating to $200,000 caught by the measure, not their entire fund.

There is also a second tier at $10 million, above which a further 10% applies (an extra 25% in total), which commentators describe as a combined effect of around 40% on earnings attributable to that portion.

 

How the ATO assesses and collects it

A distinctive feature is who receives the bill. The ATO assesses the extra tax to the individual, not to the SMSF. The first income year the measure applies is 2026–27, and the first assessments are expected after 30 June 2027, once total super balances at year-end are known.

Individuals can generally elect to release the money to pay the tax from their super fund(s), or pay it personally from other resources. That choice gives members some flexibility over whether the Liability comes out of super or from outside it.

 

A hypothetical worked example

Consider Geoffrey, a hypothetical SMSF member with a total super balance of $4 million at the end of 2026–27. This example is illustrative only and simplifies the actual formula.

Suppose his super earnings for the year, on the relevant adjusted basis, are $200,000 — a 5% return on $4 million.

The portion of his balance above $3 million is $1 million, or 25% of his $4 million balance. Broadly, 25% of his $200,000 earnings — that is, $50,000 — is treated as attributable to the excess. Division 296 applies an extra 15% to that amount, giving roughly $7,500 of additional tax for the year, assessed to Geoffrey personally. He could elect to pay it from his SMSF or from his own pocket.

The figures illustrate the mechanism only; the legislated calculation involves specific adjustments and is not a forecast of any individual’s liability.

 

What SMSF trustees need to know

For trustees, the practical work is measurement and timing. Because the tax is based on realised earnings and total super balance at year-end, accurate valuations and clear records matter. Trustees of funds near or above $3 million generally watch how large asset sales in a year affect realised earnings, keep track of each member’s total super balance across all their super, and note that the threshold is indexed. As the measure is assessed to the individual, coordination between the fund’s records and the member’s personal tax position is important. None of this points to any particular course of action; it simply describes what the new law puts on the agenda.

 

Key Takeaway

Division 296 is enacted law that applies from 1 July 2026, with the first income year 2026–27 and first assessments expected after 30 June 2027. It adds an extra 15% to earnings attributable to the portion of an individual’s total super balance above $3 million (and a further 10% above $10 million), on a realised-earnings basis with an indexed threshold. The ATO assesses the extra tax to the individual, who can generally elect to pay it from super. Only balances above $3 million are affected.