What the New Division 296 Tax Means for High-Balance Superannuation
Updated superannuation tax rules provide clarity and improved outcomes for high balances.
Following extensive consultation with the superannuation sector, the Federal Government’s Superannuation (Building a Stronger and Fairer Super System) Imposition Bill 2026 passed through parliament on 10 March 2026. The legislation introduces two key changes, including the new Division 296 tax on superannuation balances above $3 million.
The updated framework represents a meaningful evolution from the original design, reflecting industry feedback and addressing practical concerns around implementation, fairness, and the timing of tax liabilities.
Key Takeaways
Realised earnings – Only actual investment income and net realised gains (as defined under tax law) are taxed.
Indexed thresholds – $3 million and $10 million limits track inflation.
Two-tiered tax – Separate rates apply above $3 million and $10 million.
Timeline – Start 1 July 2026; first assessments 2027–28.
Several aspects of the new approach can be seen as positive outcomes for members with large superannuation balances, including greater flexibility over tax timing, protection against inflation eroding thresholds, and a more manageable approach to high-balance taxation.
Treasurer Jim Chalmers confirmed the revised approach introduces several important changes:
Moving to a Realised Earnings Approach
For individuals with significant superannuation balances, the move to a realised earnings methodology represents a meaningful improvement over the original proposal.
By applying tax only to actual investment income and realised capital gains, rather than unrealised balance growth, the approach eases liquidity pressures and provides members with greater flexibility over the timing of their tax obligations. This adjustment is particularly welcome in volatile markets, where fluctuations in account balances can materially influence retirement planning decisions.
Indexation of Threshold Amounts
Unlike the original proposal, which would have left these thresholds fixed, the new indexation ensures they keep pace with inflation.
$3 million threshold indexed to CPI in $150,000 increments
$10 million threshold indexed to CPI in $500,000 increments
This change helps members maintain their current level of tax concessions as their superannuation grows, reducing the risk of being unintentionally pushed into higher tax rates over time.
Two-Tiered Tax Structure
To provide a more balanced and manageable approach to high-balance super accounts, the Division 296 framework implements a two-tiered tax structure:
30% tax rate on earnings for balances between $3 million and $10 million
40% tax rate on earnings for balances above $10 million
Implementation Timeline
The tax will come into effect on 1 July 2026, and the first assessments are expected in the 2027–28 financial year.
These changes are being enacted through the Superannuation (Building a Stronger and Fairer Super System) legislative package, which replaces and finalises the earlier Better Targeted Superannuation Concessions Bills.
Who Will Be Affected?
The changes will affect less than 0.5% of Australians with superannuation accounts in 2026–27. The higher tier rate on balances above $10 million will affect less than 0.1%.
Individuals with total superannuation balances below $3 million will not be affected. The introduction of indexation is expected to reduce the number of individuals captured over time compared with the original design.
Importantly, Division 296 will also apply to a deceased person’s total superannuation balance until their benefits have been paid out of the superannuation system. An exception applies where the individual dies on or before 30 June 2027, in which case Division 296 will not apply to their post death superannuation balance.
How the New Tax Structure Works
Up to $3 million: The current concessional tax rate of up to 15% on superannuation earnings will continue to apply.
Between $3 million and $10 million: An additional 15% Division 296 tax will apply to a proportion of earnings, resulting in an overall rate of up to 30% on that portion.
Above $10 million: An additional 25% tax will apply to the proportion of earnings above $10 million, resulting in an overall rate of up to 40% on that portion.
Division 296 tax will be calculated by applying these rates to the share of an individual’s earnings that corresponds to the percentage of their total superannuation balance exceeding the relevant thresholds.
Key Features of Division 296 Tax
Individual Assessment
The Division 296 tax will be levied directly on individuals, separate from both personal income tax and superannuation fund tax. The Commissioner of Taxation will calculate and notify individuals of their liability for each income year.
All Superannuation Accounts Included
Total superannuation balances include all Australian accounts—APRA-regulated funds, self-managed super funds (SMSFs), and exempt public sector schemes.
No Cap on Balances
These changes do not cap superannuation balance sizes. Individuals can continue to accumulate wealth in super, but earnings on balances above $3 million will receive reduced tax concessions.
Realised Earnings Methodology
Superannuation funds will calculate realised earnings based on the fund’s taxable income, adjusted for elements such as contributions and pension-phase income. Funds report relevant data to the ATO, which determines each individual’s Division 296 earnings and tax liability across all superannuation interests.
Loss Carry Forward
Negative earnings on balances above $3 million can be carried forward to offset Division 296 tax in future years.
How the Process Will Work
The ATO identifies an in-scope member (total super balance of $3 million or more).
The super fund calculates realised earnings attributable to that member and reports this to the ATO.
The ATO determines the proportion of the member’s balance exceeding the thresholds.
The ATO calculates the total Division 296 tax liability across all interests.
The individual receives their tax assessment notice.
How the Calculation is Expected to Work
Division 296 tax will be calculated by applying tax rates to a percentage of an individual's superannuation earnings. These percentages would equal the percentage of their total superannuation balance that exceeds the relevant thresholds.
Example 1: Both APRA-regulated fund and SMSF interests
Megan is 58 and she is both a member of an APRA-regulated fund and a member of an SMSF and has a total super balance of $4.5 million, of which $2.3 million is in an APRA fund and the remaining $2.2 million is in an SMSF.
In the 2026-27 financial year, Megan had $100,000 in realised earnings from her APRA fund and $200,000 in realised earnings from her SMSF (a total of $300,000).
The proportion of her $4.5 million balance above the $3 million threshold is 33.33 per cent. The proportion above $10 million is nil.
Megan’s Division 296 tax liability is therefore $15,000 (0.15 x 0.3333 x $300,000).
Example 2: SMSF member with over $10 million
Emma is 55 and a member of an SMSF and has a total super balance of $12.9 million at the end of the 2026-27 income year. That year she was attributed $840,000 of the fund’s realised earnings for the purposes of this tax.
The proportion of her balance above the $3 million threshold is 76.74 per cent and the proportion of her balance above the $10 million threshold is 22.48 per cent.
Emma’s Division 296 tax liability is therefore $115,581 (0.15 x 0.7674 x $840,000 + 0.10 x 0.2248 x $840,000). Note the combined Division 296 tax rate on earnings over $10 million is 25 per cent.
Example references: Better Targeted Superannuation Concessions, 13 October 2025, treasury.gov.au.
Payment Options
Individuals can choose how to pay their Division 296 tax:
Release amounts from superannuation to cover the liability; or
Pay using personal funds outside the super system.
Tax assessments are generally due within 84 days of the ATO notice, unless deferred under specific legislative provisions (for example, for certain defined benefit interests).
Special Considerations
Special rules apply for individuals with:
Defined benefit interests
State higher-level office holders with constitutionally protected funds
Commonwealth justices and judges with interests under the Judges’ Pension Act 1968
Territory Supreme Court judges with judicial pension schemes
The government will consult on extending existing exemptions to improve consistency and ensure appropriate treatment for defined benefit members. For these members, payment of Division 296 tax may be deferred until benefits are accessed.
What This Means for Retirement Strategy
Individuals with superannuation balances approaching or exceeding $3 million should review their retirement strategies. The introduction of indexation, the two-tiered structure, and the shift to a realised earnings approach represent a more refined framework but also add complexity for high-balance superannuation planning.
Our team will be working with SMSF clients and members with larger superannuation balances to help them understand how the new rules apply in practice and what this means for their long-term retirement strategy.
Whether you are an existing client or considering professional advice for the first time, personalised guidance can help you navigate these changes with confidence. If you have questions about how Division 296 may impact your situation, contact a trusted MGD Wealth adviser.
References
Australian Taxation Office Transfer Balance Cap and Contributions Caps official guidelines.
Disclaimer:
Important Note: This article provides general information based on Treasury fact sheets and policy updates. Any advice included in this article is general and has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider its appropriateness having regard to these factors before acting on it. Before you make any decision about whether to acquire a certain financial product, you should obtain and read the relevant product disclosure statement. Any tax information in this article refers to current laws, is not based on your unique circumstances and should not be relied on as tax advice. MGD Wealth Ltd, AFSL no. 222600; ABN 53 009 079 725.
Liability limited by a Scheme approved under Professional Standards Legislation.
