Division 296 Tax Australia: How the New Super Tax Works for Balances Over $3 Million
Division 296 is law and takes effect from 1 July 2026. This plain-English guide explains who pays it, how it's calculated, and what strategies exist to manage your liability.
Division 296 tax is now law. It passed Parliament in March 2026 and takes effect from 1 July 2026. If your total superannuation balance (TSB) exceeds $3 million, you'll receive an ATO assessment for an additional 15% tax on a portion of your super's investment earnings.
This guide explains in plain English exactly who pays it, how the calculation works, and what steps — if any — make sense to consider.
What is Division 296 tax?
Division 296 is an additional personal tax (not a fund tax) charged to individuals whose superannuation balance exceeds $3 million. It's called "Division 296" because those are the relevant sections of the tax legislation.
The existing 15% earnings tax paid by your super fund is unchanged — Division 296 sits on top of it for balances above the threshold, effectively doubling the tax rate on that portion of earnings from 15% to 30%.
Who pays Division 296 and at what threshold?
| Super balance (TSB) | Additional Division 296 tax rate | Total effective earnings tax rate |
|---|---|---|
| Below $3 million | Nil | 15% (standard fund tax) |
| $3 million – $10 million | 15% additional | 30% total |
| Above $10 million | 25% additional on the excess | 40% total on the >$10M portion |
Couples: The threshold applies to each individual separately. A couple can have up to $6 million combined in superannuation before either partner is subject to Division 296.
Not affected: Defined benefit fund members have their own calculation method — the ATO will issue separate guidance for those cases.
The $3 million threshold is not indexed to inflation, which means that as super balances grow over time, more Australians will be captured by Division 296 in future years.
How Division 296 is calculated
The calculation uses three steps:
Step 1 — Determine your TSB at year-end Your total superannuation balance is measured at 30 June each year. The ATO sources this from your fund's annual return.
Step 2 — Calculate your "applicable proportion" This is the fraction of your balance that exceeds $3 million:
Applicable proportion = (TSB − $3,000,000) ÷ TSB
Step 3 — Apply the proportion to your realised earnings Your "Division 296 superannuation earnings" (realised earnings from the year) are multiplied by the applicable proportion. Division 296 tax is 15% of the result.
Worked example: $4 million TSB
| Amount | |
|---|---|
| TSB at 30 June 2027 | $4,000,000 |
| Applicable proportion | ($4M − $3M) ÷ $4M = 25% |
| Realised earnings for 2026-27 | $200,000 |
| Attributable earnings | 25% × $200,000 = $50,000 |
| Division 296 tax (15%) | $7,500 |
Worked example: $3.5 million TSB
| Amount | |
|---|---|
| TSB at 30 June 2027 | $3,500,000 |
| Applicable proportion | ($3.5M − $3M) ÷ $3.5M = 14.3% |
| Realised earnings for 2026-27 | $150,000 |
| Attributable earnings | 14.3% × $150,000 = $21,430 |
| Division 296 tax (15%) | $3,214 |
Use our Superannuation Calculator to project your super balance over time and understand when you might approach the $3 million threshold.
The most important distinction: realised earnings, not unrealised gains
The original proposal that caused widespread concern would have taxed unrealised gains — paper profits on assets still held in the fund, including illiquid assets like commercial property that can't easily be sold to fund a tax bill.
The final law taxes only realised earnings:
- Dividends and distributions received
- Interest income
- Rental income
- Capital gains from assets actually sold
If your super fund holds a commercial property worth $5 million that hasn't been sold, and the value increases by $200,000 in a year, that paper gain is not included in Division 296 earnings. You only pay Division 296 on income and gains you actually received in cash terms.
This change significantly reduces the compliance burden for SMSF trustees with illiquid assets, though those with large SMSFs holding property should still model their long-term exposure.
When does the first Division 296 assessment arrive?
| Date | |
|---|---|
| First affected financial year | 2026–27 (1 July 2026 – 30 June 2027) |
| Year-end balance measured | 30 June 2027 |
| First assessment issued by ATO | After 30 June 2027 (expected in late 2027) |
| Payment due | 60 days after assessment date |
The first year has a special rule: only the end-of-year TSB is used to calculate the applicable proportion (the normal rule uses the higher of start-of-year or end-of-year balance). This means if your TSB is below $3 million on 30 June 2027, you will not pay Division 296 for 2026-27, regardless of what your balance was during the year.
Can you pay Division 296 from your super fund?
Yes. Division 296 is assessed to you personally, but you can elect to have the tax paid from your super fund. The ATO sends the assessment to you, and you submit a request to your trustee to release the funds.
Key points:
- You must submit the request to your fund within the payment timeframe (60 days of assessment)
- The fund then pays the ATO directly on your behalf
- The amount released reduces your super balance
- For SMSFs, you need to instruct yourself (as trustee) to release the funds and pay the ATO
Many people with significant super balances prefer to pay from the fund rather than from personal cash, particularly if their income outside of super is limited.
SMSF-specific considerations
Self-managed super funds are fully subject to Division 296 — there is no blanket exemption. However, a few SMSF-specific issues are worth understanding:
Illiquid assets: If your SMSF holds property or unlisted shares, your realised earnings may be lower than the fund's total return in a given year. However, rental income is counted, so a SMSF owning a commercial property generating $100,000 in rent will have that counted in Division 296 earnings.
Fund administration: Your SMSF trustee (whether yourself or a professional administrator) must report Division 296 earnings accurately via the annual return. Ensure your accountant is across the new reporting requirements.
Pension phase: If you're drawing a pension from your SMSF, the proportion of earnings in pension phase is already exempt from the 15% fund tax. Division 296 earnings are calculated differently for pension phase assets — get professional advice on the specific interaction.
Strategies worth considering
If you are approaching or over the $3 million threshold, these are the options advisers typically discuss. None are simple and all require personal advice:
Withdraw to below $3 million (if eligible): If you're old enough and in the right conditions, withdrawing super to bring your balance below $3 million eliminates the Division 296 liability. Withdrawn amounts are then held in your personal name and taxed differently.
Spouse rebalancing: If your partner has a significantly lower super balance, contributions or strategies to shift wealth into the lower-balance partner's super can reduce the portion above $3 million. This doesn't reduce combined super, but may reduce Division 296 exposure.
Review your fund's investment mix: Since Division 296 applies only to realised earnings, a fund holding growth assets with minimal income (like a portfolio of growth shares that are rarely sold) will have lower Division 296 earnings than one generating high dividend or interest income. This is a real trade-off between income and capital growth within super.
Do not panic-sell assets: Selling super assets to reduce an unrealised gain was necessary under the old (scrapped) proposal. Under the final law, you only pay on realised gains, so there's no need to restructure purely to avoid taxing paper profits.
Frequently asked questions
What is Division 296 tax and when does it start?
Division 296 is an additional 15% personal tax on the portion of super earnings attributable to balances above $3 million. It became law in March 2026 and applies from 1 July 2026. The first assessments will be issued after 30 June 2027, covering the 2026-27 income year.
Who has to pay Division 296 tax in Australia?
Any individual whose total superannuation balance (TSB) exceeds $3 million at 30 June in a financial year. The threshold applies to each person separately — couples can have up to $6 million combined before either is affected. Companies, trusts, and the funds themselves are not directly liable.
How is Division 296 tax calculated — does it tax unrealised gains?
The final legislation taxes only realised earnings: dividends, interest, rent, and capital gains from assets actually sold. Unrealised gains (paper increases in asset value) are not included. The original proposal to tax unrealised gains was removed before the legislation passed.
Can I pay Division 296 tax from my super fund?
Yes. The ATO issues the assessment to you personally, but you can elect to have your super fund pay it on your behalf. You request the release of funds within 60 days of receiving the assessment, and the fund pays the ATO directly. This reduces your super balance by the tax amount.
Does Division 296 apply to SMSFs?
Yes. SMSFs are fully subject to Division 296. Trustees must ensure accurate reporting of realised earnings in the annual return. SMSF trustees with illiquid assets (like property) should note that rental income counts as realised earnings even if the property isn't sold. Get advice from a registered SMSF specialist.
What is the $10 million super threshold additional tax?
For individuals with super balances above $10 million, Division 296 tax increases to 25% (instead of 15%) on the portion of earnings attributed to the $10M+ balance. Combined with the standard 15% fund earnings tax, the total effective rate on earnings above $10 million is 40%.
This article is for general information only and does not constitute financial, tax or legal advice. Individual circumstances vary. Consult a registered tax agent or licensed financial adviser before making decisions based on this information.
Written by
Mahi PatilSoftware engineer & personal finance enthusiast · Melbourne, Australia
Built Dolaro.com.au to create accurate, free Australian finance tools. Invests in Australian and global ETFs and writes about the topics researched firsthand. More about Mahi →