After several years of consultation and amendment, Division 296 — commonly referred to as the “$3 million super tax” — is now law. The legislation passed Parliament in March 2026 and applies from 1 July 2026, introducing a new layer of tax for Australians with very large superannuation balances.
This article explains:
- The facts — how Division 296 works
- Who it applies to
- What actions may be appropriate before 30 June 2026
- How people should think strategically about their super going forward — and why
The Facts: How Division 296 Works
What is Division 296?
Division 296 introduces an additional tax on superannuation earnings for individuals whose total superannuation balance (TSB) exceeds certain thresholds.
Key points:
- It is a personal tax, assessed to the individual, not the super fund
- It sits on top of existing super taxes — it does not replace them
- It applies only to earnings, not to the super balance itself
- Importantly, the final law does not tax unrealised capital gains — only realised income and gains are included
Who Does Division 296 Apply To?
This is one of the most critical points to understand:
Division 296 applies per individual, not per super fund, not per SMSF, and not per couple.
This means:
- All of an individual’s super interests are aggregated
- SMSFs, retail funds, industry funds and defined benefit interests are all included
- Two members of the same SMSF can be in very different tax positions
The Thresholds and Tax Rates (from 1 July 2026)
Total Super Balance | Additional Division 296 tax
Over $3 million | +15% on attributable earnings
Over $10 million | Additional +10% (25% total under Division 296)
When combined with the existing 15% tax on super earnings, this results in:
- Up to 30% tax on earnings attributable to balances above $3 million
- Up to 40% tax on earnings attributable to balances above $10 million
Both thresholds are indexed to CPI in set increments.
When Is the Balance Measured?
From 1 July 2026:
An individual’s TSB is assessed using the higher of:
- Their balance at the start of the financial year; or
- Their balance at the end of the financial year
Transitional rule (first year only):
- For the first year of operation, TSB will be assessed at 30 June 2027 only
- The first ATO Division 296 assessments are expected after 30 June 2027
How Is the Tax Paid?
The ATO will issue a Division 296 assessment directly to the individual.
The individual can then choose to:
- Pay the tax personally; or
- Elect to release funds from super
This will require completion and lodgement of an ATO Division 296 tax election form through myGov, at which point the ATO will issue a release authority to the fund via SuperStream, similar to Division 293 tax.
What Should People Do — and Why?
For most people, Division 296 is not about drastic action. It is about positioning, structure and discipline.
Below are the key strategic areas clients should focus on.
1. Understand Your Position — Accurately
What to do:
- Calculate your total super balance across all funds
- Confirm whether you are:
- Well below $3 million
- Approaching $3 million
- Already above the threshold
- Consider any future circumstances that could change your position (e.g. downsizer contributions, contribution strategies, death benefit pensions, reversionary pensions from a spouse)
Why this matters:
- Strategy is completely different depending on how far above (or below) the threshold you are
- Many people incorrectly assess their position by looking at one fund only
- This is the foundation for every other decision
2. Focus on Asset Mix — Not Just Returns
Division 296 does not tax balances — it taxes realised earnings. This makes asset selection inside super more important than ever.
Broad strategic considerations:
High-income assets (cash, term deposits, high-yield investments):
- Generate taxable income every year
- Reduce flexibility under Division 296
Growth assets with controlled realisation (listed shares, ETFs):
- Allow greater discretion over when tax is triggered
- Can smooth taxable earnings over time
Lumpy or illiquid assets (direct property, unlisted assets):
- May produce very large one-off taxable events
- Can create liquidity pressure when Division 296 tax becomes payable
Why this matters:
Well-structured portfolios reduce the risk of:
- Large, unexpected tax bills
- Forced asset sales at the wrong time
- Paying Division 296 tax sooner or more heavily than necessary
3. Lower Starting Values Are Generally Better — But Be Careful
A common question is whether it is better to start just above or well above $3 million.
In general:
- A lower starting value near the threshold is preferable
- Less of the portfolio’s earnings are exposed to Division 296
- The effective tax rate is diluted
However:
- Asset values must be accurate and defensible
- SMSFs holding property or unlisted assets should ensure robust, supportable valuations
Poor valuations increase audit risk and uncertainty and should be avoided.
4. Liquidity Is Now Becoming Even More of a Strategic Issue
Because Division 296 is assessed personally but often paid from super:
What to consider:
- Is there adequate liquidity to pay tax when it arises?
- Would a major asset sale create both:
- Fund-level tax; and
- A significant Division 296 liability?
Why this matters:
Illiquid portfolios can force:
- Unplanned asset sales
- Payments from outside super
- Poor timing decisions that destroy long-term value
Liquidity is no longer just about risk — it is about tax control.
5. Review Asset Location (But Don’t Rush)
Division 296 reopens the conversation around where assets are held, but it does not mean super is suddenly unattractive.
Important perspective:
Even at 30% or 40%, super remains:
- Tax-competitive
- Structurally stable
- Attractive for long-term growth assets
The decision is rarely “super or not super” — it is about which assets belong where, and why.
6. Understand the CGT Cost Base Reset for Division 296 Purposes (If Relevant)
For certain SMSF assets, a one-time CGT cost base reset may be available as part of the transition to Division 296. If trustees wish to opt in, they will need to do so by the due date of the 2026 SMSF Annual Return, although the exact process has not yet been confirmed.
Please note that this is different to the CGT cost base reset from 2017. This reset applies only for the purpose of calculating Division 296 tax and will not be used for regular income tax purposes.
Why this matters:
- Growth accrued before 1 July 2026 may be effectively excluded from Division 296
- Future realised gains relate only to post-reset growth
This option can be valuable, but it is irreversible and must be considered carefully.
What Division 296 Does Not Mean
It is equally important to be clear about what should not be done.
Division 296 does not automatically mean:
- Withdrawing large amounts of super
- Abandoning growth strategies
- Making rushed or irreversible structural changes
Superannuation, even with Division 296 applying, will often remain the appropriate long-term environment for many assets.
Final Thoughts
Division 296 is a structural change, not a reason to panic.
Clients who respond well will:
- Understand their total super balance
- Accept that some tax is inevitable at higher balances
- Focus on asset mix, liquidity and timing
- Make decisions deliberately, not reactively
The goal is not to avoid Division 296 at all costs, but to manage it effectively so super continues to serve its purpose as a long-term wealth vehicle.
If you would like more information on how this change may affect you, please do not hesitate to contact us.
Disclaimer
This information is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs. It should not be relied upon as accounting, taxation, financial or legal advice. Before making any decision or acting on this information, you should consider the appropriateness of the information in light of your individual circumstances and, where appropriate, seek professional advice. While care has been taken in preparing this information, no liability is accepted for any loss arising from reliance on it.
