Most discussion of Division 296 has centred on the $3 million threshold, but the enacted law also contains a second, higher tier. Since 1 July 2026, members with total super balances above $10 million face a further 10 per cent tax on a slice of their earnings. With the first income year now under way, SMSF trustees with very large balances may want to understand how the two tiers interact.

Two thresholds, one tax

Division 296 tax commenced on 1 July 2026 under the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026. According to the ATO, the large super balance threshold is $3 million and the very large super balance threshold is $10 million for 2026–27.

The ATO describes the structure as a 15 per cent tax on taxable super Earnings where a member's total super balance, or TSB, exceeds the large threshold. An additional 10 per cent applies to very large super balance earnings where the TSB exceeds $10 million.

The ATO notes that both thresholds may increase through indexation in future years.

Where the 40 per cent figure comes from

Super funds already pay tax of up to 15 per cent on Investment earnings. Division 296 adds 15 per cent on earnings attributable to the balance above $3 million, taking the effective rate on that slice to around 30 per cent.

For earnings attributable to the balance above $10 million, the further 10 per cent is layered on top. That produces the headline effective rate of around 40 per cent: 15 per cent in the fund, plus 15 per cent, plus 10 per cent.

It is important to note that 40 per cent is not applied to a member's entire earnings. Each rate applies only to the proportion of earnings linked to the relevant slice of the balance.

How the proportions are calculated, two proportions are worked out for each affected member. The first is the member's TSB minus $3 million, divided by their TSB. The second is the TSB minus $10 million, divided by the TSB.

As an example, a $15 million TSB, where 80 per cent of earnings relate to the balance above $3 million and one third relate to the balance above $10 million.

Each proportion is then applied to the member's relevant super earnings. For SMSFs, those earnings are the member's share of fund earnings, which the ATO says generally needs to be determined by an actuary.

A hypothetical worked example

For example, consider a hypothetical SMSF member with a TSB of $12 million at 30 June 2027 and relevant super earnings of $600,000 for 2026–27. The figures are illustrative only.

The portion above $3 million is $9 million, which is 75 per cent of the $12 million balance. The portion above $10 million is $2 million, or one sixth of the balance, roughly 16.67 per cent.

For the first tier, 15 per cent of 75 per cent of $600,000 comes to $67,500. For the second tier, 10 per cent of one sixth of $600,000 comes to $10,000. The total Division 296 tax in this hypothetical is $77,500.

Another way to view it is by slice. Earnings linked to the first $3 million, $150,000, attract no Division 296 tax. Earnings linked to the $3 million to $10 million band, $350,000, attract an extra 15 per cent, or $52,500. Earnings linked to the top $2 million, $100,000, attract an extra 25 per cent, or $25,000.

Both approaches produce the same $77,500, which is about 12.9 per cent of the member's total earnings. That is well below the 40 per cent headline, because only the top slice carries the full stack.

Timing and balance rules

The ATO says that for 2026–27 only, Division 296 applies if a member's TSB at the end of the year exceeds the thresholds. From later years, it applies if the TSB either just before the start of the year or at the end of the year exceeds them.

This means a member moving above or below $10 million during a year may still be assessed on the higher tier, depending on when balances are measured. The ATO also notes that limited recourse borrowing arrangement amounts are disregarded when working out TSB for these purposes.

Why earnings drive the bill, and who pays it

Because the revised law taxes realised earnings rather than unrealised gains, the size of the bill in any year depends heavily on income and asset sales., earnings broadly include rent, interest, dividends and net realised capital gains, with concessional contributions ignored and a floor of zero.

A member's Liability may therefore differ sharply between a year with a large asset sale and one without. SMSFs may also make a one-off, irrevocable election to reset CGT asset cost bases to Market Value at 30 June 2026, which the ATO says must be made by the due date of the fund's 2026–27 annual return.

Division 296 tax is assessed to the individual rather than the fund. The ATO says it can generally be paid from the individual's super., members can pay personally or instead elect to have it released from super.

For members at this level, the approach may interact with estate planning, asset protection and structure decisions. RSM Australia partner Kate Timms told SMS Magazine that for balances above $10 million, asset protection should be part of the conversation, not only tax.

The bottom line

The $10 million tier adds a further 10 per cent tax on the share of earnings attributable to balances above that level, producing an effective rate of around 40 per cent on that slice only. The hypothetical example shows how proportions, not whole balances, determine the outcome. With end-of-year balances used for 2026–27 and realised earnings driving the calculation, the tier's impact may vary considerably from year to year.