What the Latest Division 296 Changes Mean 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 announced substantial revisions to its Division 296 tax proposal on 13 October 2025.
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 income and realised gains are taxed.
Indexed thresholds – $3 million and $10 million limits track inflation.
Two-tiered tax – Separate rates apply above $3 million and $10 million.
Delayed timeline – Start 1 July 2026; first assessments 2027–28.
Several aspects of the revised 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 revised 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
Delayed Implementation Timeline
The implementation timeline has been delayed, with the start date now set for 1 July 2026 (previously 1 July 2025) and the first assessments expected in the 2027–28 financial year (previously 2026–27).
These changes are being introduced through the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023.
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.
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. In-scope members will be attributed an appropriate share of the fund’s realised earnings.
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
The precise method for calculating tax liability will be settled during consultation, but it is anticipated that 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 BTSC 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 BTSC 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 BTSC 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.
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 realised earnings represent a more refined policy that addresses earlier design flaws.
Once the final legislation is released, our team will carefully review the changes and provide tailored guidance for SMSF clients and members with larger superannuation balances, ensuring they can consider any implications for their long-term retirement strategy.
In the meantime, if you have questions about Division 296, reach out to your MGD Wealth adviser.
More Information
For detailed information on Division 296 and the Better Targeted Superannuation Concessions policy updates, visit treasury.gov.au. The government is expected to introduce legislation in 2026 following further consultation with the superannuation industry.
References:
The Treasury, Better Targeted Superannuation Concessions, 13 October 2025, treasury.gov.au
Disclaimer: This article provides general information based on Treasury fact sheets and policy updates. Any advice in this article is general and does not take into account your objectives, financial situation, or needs. You should consider its appropriateness before acting. Any tax information refers to current law and should not be relied upon as tax advice. Before making decisions about financial products, obtain and read the relevant product disclosure statement. MGD Wealth AFSL No. 222600.
