Division 296 Tax Is Now Law: What It Means for Your Super

The Federal Government’s proposed Division 296 tax has now passed Parliament (11 March 2026) and will apply from 1 July 2026. While the rules have evolved since first being announced in 2023, the final legislation introduces a new layer of tax for individuals with higher superannuation balances—prompting many to reconsider how their super is structured.

What Is The Division 296 Tax?

Division 296 is a new personal tax that applies to individuals with total super balances above $3 million. It captures super held across all funds—SMSFs, retail, and industry funds—and applies an additional tax on earnings attributable to balances above the threshold.

How Much Is the Tax?

Division 296 tax is a completely new tax related to superannuation. It is charged in addition to all existing super fund and personal taxes.

In any given financial year, it will apply to people who have more than $3m in super at the start or end of the year (ie, 1 July 2027 or 30 June 2028 for the Division 296 tax for 2027/28).

There will be two levels of extra tax – one that applies just to people with more than $3m in super and another that applies just to those with more than $10m in super.

It will be calculated as:

15% tax the proportion of super over $3m superannuation earnings.

10% tax the proportion of super over $10m superannuation earnings.

Note - There is a special rule for the first year of operation (2026/27). Year one is calculated differently, as it doesn't consider the opening balances as at 01/07/2026, only closing balances as at 30/06/2027.

When Does It Start?

The tax applies from 1 July 2026, with the first impacted financial year being 2026–27.

Importantly, for this first year, only your end-of-year balance (30 June 2027) is considered—creating a planning window for those close to the $3 million threshold.

Key Things to Understand

It’s Based on Your Total Super Balance

The calculation uses your total superannuation balance (TSB) across all funds. For most people, this is simply the total shown on their super statements.

It Applies Proportionally

You won’t pay extra tax on all your super earnings—only the portion linked to balances above $3 million (and $10 million where relevant).

No Tax on Unrealised Gains

Unlike earlier proposals, the final legislation does not tax unrealised capital gains.

Only realised earnings—such as rent, dividends, interest, and capital gains—are included (with standard tax treatments applying).

Asset Sales Could Trigger Higher Tax

Because realised capital gains are included in the year they occur, selling a large asset (like property) could result in a higher tax liability in that year.

A Critical Planning Opportunity: Pre-30 June 2026 Assets

For SMSFs with significant unrealised gains, the legislation provides an important concession.

Assets held at 30 June 2026 can effectively be “reset” to market value for Division 296 purposes—meaning historical gains are excluded from future calculations.

However:

• This relief is not automatic

• It requires a formal election

• It applies to all assets or none

This makes early planning—and accurate valuations—essential.

Should You Withdraw Money from Super?

This is one of the most common questions—and the answer depends on your broader financial position.

Withdrawing funds may reduce exposure to Division 296, but it could also:

• Increase your personal tax position

• Reduce the long-term benefits of the super environment

There’s no one-size-fits-all answer, which is why strategic advice is critical before making any changes.

What Should You Do Now?

Even if you’re below the $3 million threshold today, this is an opportunity to plan ahead.

Key considerations include:

• Reviewing your current super balance and projected growth

• Assessing exposure to future Division 296 tax

• Considering contribution and withdrawal strategies

• Reviewing asset structures within your SMSF

How We Can Help

Division 296 is a complex change, and the right strategy will depend on your individual circumstances.

As SMSF specialists, we help clients:

• Understand how the new rules apply to them

• Model potential tax outcomes

• Identify practical strategies to manage exposure

• Make informed decisions with confidence

If you’d like to understand how Division 296 may impact your super—and what steps you can take now—get in touch with us.