Two numbers dominate discussion around Australia's new super tax: 30% and 40%. However, neither figure represents a tax on the entire super balance, and neither automatically applies to all of a person's superannuation earnings.

Division 296, which has applied from 1 July 2026, taxes only the proportion of earnings associated with the part of a person's total super balance above the relevant thresholds.

The first additional layer applies above $3 million, while a further layer applies above $10 million.

Two Thresholds, Two Additional Layers

Super funds generally pay tax on earnings in accumulation phase at a rate of 15%.

Division 296 sits on top of that existing fund-level tax and is assessed to the individual member rather than the super fund itself.

An additional 15% applies to the proportion of superannuation earnings attributable to the part of a person's total super balance above the Large Super Balance Threshold of $3 million.

A further 10% applies to the proportion of earnings associated with the part of the balance above the Very Large Super Balance Threshold of $10 million.

This creates the commonly quoted effective rates of 30% between $3 million and $10 million and 40% above $10 million when the standard 15% fund tax is included.

Those headline rates are useful as shorthand, but they can be misleading if read as applying to all earnings.

Only the portion of earnings linked to the balance above each threshold is exposed to the additional tax.

How the Balance Test Works

The starting point is a person's total super balance, or TSB.

This broadly brings together the individual's relevant interests across their superannuation funds.

For 2026–27, a transitional rule means the key balance is the person's TSB at 30 June 2027.

From 2027–28, the test changes and considers the greater of the person's opening and closing total super balance for the financial year.

If the relevant balance is $3 million or less, Division 296 does not apply for that year.

Each individual is tested separately, meaning the balances of spouses are not automatically combined.

Where the relevant balance exceeds the threshold, the next step is to determine what proportion of earnings is associated with the excess balance.

How the Taxable Proportion Is Calculated

For the first layer, the proportion is broadly calculated as:

Total super balance minus $3 million, divided by total super balance.

For the second layer, the calculation is broadly:

Total super balance minus $10 million, divided by total super balance.

This means there is no immediate tax cliff at $3 million.

Consider a person with a total super balance of $3.1 million.

The amount above the threshold is $100,000.

Dividing $100,000 by $3.1 million gives an exposed proportion of roughly 3.2%.

If that person had $200,000 of attributable superannuation earnings, only about $6,450 would be exposed under the first Division 296 layer.

Applying 15% would produce additional tax of roughly $970.

The example shows why a small movement above the threshold does not result in the entire amount of super earnings becoming subject to the additional tax.

The Tax Applies to Earnings, Not the Balance

Division 296 does not impose tax directly on the capital balance itself.

The total super balance is used to determine the proportion of earnings that is exposed.

The actual tax rate is then applied to those earnings.

This distinction matters because a person can have a substantial super balance while only a fraction of their annual earnings is subject to the additional tax.

A member at $5 million does not pay an extra 15% on all superannuation earnings simply because the balance exceeds $3 million.

Instead, the calculation focuses on the share of the balance above the relevant threshold.

What Counts as Division 296 Earnings

The final Division 296 framework uses a realised earnings approach.

Broadly, the earnings calculation starts from tax concepts already used within the superannuation system and then makes prescribed adjustments.

This means paper gains on assets that have not been realised are not automatically taxed merely because market values have increased.

The calculation can also adjust for matters such as assessable contributions, exempt pension income and other specified items.

Funds then attribute the relevant amount of earnings to individual members.

Where a net loss arises under the Division 296 earnings calculation, the amount for that year can be treated as nil, with the loss carried forward for use against future earnings under the applicable rules.

Worked Example: $5 Million Balance

Consider a hypothetical member, Helen, with a total super balance of $5 million at 30 June 2027.

Assume $300,000 of Division 296 earnings is attributed to her for 2026–27.

The portion of her balance above $3 million is:

$5 million minus $3 million = $2 million.

Her exposed proportion is therefore:

$2 million divided by $5 million = 40%.

Forty per cent of her $300,000 of earnings equals $120,000.

Applying the additional 15% Division 296 rate to $120,000 gives a liability of $18,000.

That represents an additional effective rate of 6% across Helen's total $300,000 of earnings.

It is therefore significantly less than applying an extra 15% to the entire earnings amount.

This illustrates how the proportional calculation reduces the impact compared with the headline rate.

Worked Example: $15 Million Balance

Now consider a hypothetical member, David, with a total super balance of $15 million and attributed earnings of $900,000.

For the first layer, the amount above $3 million is $12 million.

Dividing $12 million by $15 million gives an exposed proportion of 80%.

Eighty per cent of $900,000 is $720,000.

Applying 15% gives a first-layer Division 296 liability of $108,000.

The second layer applies to the portion above $10 million.

The amount above that threshold is $5 million.

Dividing $5 million by $15 million gives a proportion of about one-third.

One-third of $900,000 is $300,000.

Applying the additional 10% rate gives a second-layer liability of $30,000.

David's total Division 296 liability would therefore be $138,000.

That equates to roughly 15.3% of his total $900,000 in earnings.

Even at this balance level, the effective additional tax rate across all earnings remains below the full combined headline rate applicable to the highest slice.

These examples are illustrative only.

Pension-Phase Interests Can Still Affect the Calculation

Division 296 can interact with earnings associated with pension-phase super interests.

While certain pension-phase earnings may receive concessional or exempt treatment within the fund itself, adjustments can still be required when calculating the member's Division 296 earnings.

This means the individual-level calculation does not necessarily mirror the tax treatment that applies inside the super fund.

The distinction between fund-level tax and member-level Division 296 tax is therefore important.

Who Receives the Assessment?

Division 296 is assessed to the individual member.

The liability is not simply deducted automatically as part of the fund's ordinary income tax.

Once a notice of assessment is issued, the amount is generally due 84 days later.

The member can generally pay the liability using money held outside super.

Alternatively, subject to the applicable rules, the person may elect within 60 days to have the amount released from one or more superannuation funds.

This gives affected members some flexibility in how the liability is funded.

Defined Benefit Interests

Defined benefit members can be subject to different payment arrangements.

Where immediate payment is not practical because the benefit cannot readily be accessed, the Division 296 liability may be deferred to a debt account.

Interest can accrue on that deferred liability using the applicable long-term bond rate.

The deferred amount is generally dealt with when the relevant defined benefit becomes payable.

Thresholds Are Indexed

The $3 million and $10 million thresholds are subject to indexation.

The $3 million threshold is indexed in increments of $150,000.

The $10 million threshold is indexed in increments of $500,000.

This means later financial years may use higher thresholds depending on movements in the applicable indexation measure.

Members should therefore consider the threshold applying to the relevant financial year rather than assuming the original figures remain fixed permanently.

Key Dates to Watch

The first important date is 30 June 2027, when the initial Division 296 balance test takes place.

After the end of the financial year, super funds must complete the reporting needed to attribute relevant earnings to affected members.

Self-managed super funds will also need to deal with applicable annual return obligations.

A separate one-off transitional election may allow eligible SMSFs to reset the cost base of qualifying assets using 30 June 2026 market values for Division 296 purposes.

The first assessments are expected in the later part of the 2027–28 financial year.

That means the first actual payment obligations may not arise until 2028 even though the underlying earnings period began on 1 July 2026.