Key Takeaways

  • Division 296 tax passed Parliament on 10 March 2026 and applies to superannuation earnings from 1 July 2026.
  • An extra 15% tax applies to earnings on super balances above $3 million; earnings above $10 million face an additional 25%.
  • After revisions to the original proposal, the tax targets realised earnings only — not unrealised gains on assets still held in the fund.
  • Both the $3 million and $10 million thresholds are indexed to CPI, addressing a major concern raised during the consultation period.
  • A CGT cost base reset to 30 June 2026 market values is available for affected members.

A Tax Years in the Making — Now a Reality

Few superannuation proposals have generated as much debate as the tax on large super balances. First announced in February 2023, the measure wound its way through consultation, amendment, and parliamentary wrangling before finally passing on 10 March 2026. It takes effect on 1 July 2026, with the first tax assessments falling in the 2026–27 financial year.

For the overwhelming majority of Australians, Division 296 tax will never apply. The $3 million threshold sits well above balances held by most retirement savers, and with CPI indexation now confirmed, that gap will not narrow in real terms over time. But for those with larger SMSFs or significant accumulation in industry super funds, understanding the detail of this tax is now a practical necessity.

How Division 296 Tax Works

The Basic Mechanics

Division 296 tax imposes an additional 15% on the portion of a member's earnings attributable to their balance above $3 million. The tax is calculated at the individual member level — it is your share of the fund's total balance that matters, not the fund's aggregate assets.

The ATO assesses the tax based on information reported by super funds. The liability is personal — it belongs to the member, not the fund — but it can be paid either personally or by electing to release funds from superannuation to meet the debt. This avoids forcing members into compulsory asset sales within their fund.

For balances above $10 million, an additional 25% rate applies to earnings on the portion above that figure. This creates a stepped structure: earnings on the $3 million–$10 million slice face an extra 15%, while earnings above $10 million face an extra 25%.

What Counts as Earnings — and What Does Not

The most significant revision between the 2023 proposal and the version that passed in 2026 concerns what counts as "earnings." The original design attracted sharp criticism for including unrealised capital gains — paper profits on assets still held in the fund. Critics argued this could force SMSF trustees to sell illiquid assets such as property or private business interests to fund a tax on gains not yet realised.

The law as passed takes a different approach. Division 296 tax applies to realised earnings only: dividends received, interest payments, rental income, and capital gains on assets that have actually been sold. Unrealised gains on assets still held at year end are excluded — a meaningful and practical change that removes the most contentious element of the original proposal.

Indexed Thresholds

CPI indexation for both thresholds was another key revision. The $3 million threshold rises in $150,000 increments and the $10 million threshold in $500,000 increments when CPI triggers an increase. This addresses the concern that, without indexation, an increasing number of Australians would be drawn into the tax's scope over time.

The CGT Reset Opportunity

Members affected by Division 296 tax can elect to reset the CGT cost base of assets in their fund to market value as at 30 June 2026. This can reduce the amount of future capital gains captured by the tax when those assets are eventually sold.

Whether a CGT reset is advantageous depends on the assets held, their current market value, and expectations about future earnings. Taking advice from a tax professional or financial adviser before 30 June 2026 is genuinely valuable for anyone considering this election.

Who Is Affected?

Based on ATO projections and industry analysis, the tax will directly affect a relatively small number of Australians — those with super balances exceeding $3 million. Many hold their retirement savings through SMSFs, where fund assets may include significant property holdings or listed shares that have grown substantially over decades.

However, the effects are not limited to those currently above $3 million. Anyone whose balance is growing toward that threshold has reason to understand how the tax works and at what point it may become relevant. For defined benefit fund members, the rules for determining the relevant balance involve different calculations, and specific ATO guidance applies.

What SMSF Trustees Should Be Thinking About

For SMSF trustees with balances approaching or exceeding $3 million, the new tax has practical implications for portfolio structure. While realised-earnings-only taxation removes the most acute pressure, liquidity still matters — if a fund generates significant realised earnings, the associated tax liability needs to be manageable.

Trustees should review their investment strategy, consider whether asset allocation remains appropriate, and assess whether elections such as the CGT cost base reset should be made before 30 June 2026. Members of large industry super funds above the threshold face a simpler administrative picture — the ATO assesses the tax directly — but the financial impact is the same.