11/03/2026
Division 296: What it means for you (from 1 July 2026)
On 10 March 2026, Parliament passed the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026, confirming the new Division 296 tax applying from 1 July 2026. These rules target only very large super balances and do not change the standard super tax settings for many Australians. Whilst it has yet to receive royal assent and become legislated, it is likely.
Who is affected?
Division 296 applies only if your Total Superannuation Balance (TSB) exceeds $3 million, this includes assets in the pension and accumulation phase. If your balance is below this level, nothing changes tax wise. The measure is expected to affect less than 0.5% of Australians.
How the tax works (applies only above the thresholds)
• Up to $3 million: No additional tax applies.
• A $3 million – $10 million portion: An additional 15% tax applies to earnings attributable to the portion of the balance above $3 million.
• An amount above $10 million: An additional 25% applies to earnings attributable to the portion above $10 million.
• Only realised (taxable) earnings are included, not unrealised gains.
• The $3m and $10m thresholds are indexed annually.
Retail super fund members will have reporting handled by their fund and the ATO will issue Division 296 assessments. SMSF members will need to carefully track realised earnings, asset sales and member balances. Whilst the tax is levied on the individual, it can be paid from superannuation assets.
Capital gains cost base adjustment for small super funds, e.g. SMSF’s
Those with small super funds such as an SMSF will need to review the allowable capital gains tax ‘cost base adjustment method’. The CGT adjustment will allow a small superannuation fund to choose to adjust the cost base of the fund’s CGT assets to the market value of those assets on 30 June 2026. The choice applies to all CGT assets held by the fund on 30 June 2026. For example, if an SMSF owns a property purchased for $1,000,000 (cost base), and it’s now worth $2,000,000, assigning the cost base of $2,000,000 may reduce future capital gains and tax. Caution: if you choose this method it applies to all assets within the fund. This is a complex area, and advice needs to be obtained before making any decisions. Once this cost base is reset, it cannot be undone.
Important Timing: TSB measurement rules
• The TSB may be measured at both the start and end of the year, with the higher value being used.
• For the first assessment year, the TSB is expected to be assessed at 30 June 2027 only.
• Into the future, you cannot rely on withdrawing funds just prior to the end of the relevant financial year to avoid Division 296 applying to you; professional guidance is essential.
Worked Example: $4 Million balance
• Total super balance (100% accumulation): $4,000,000.
• Excess above $3,000,000 threshold: $1,000,000.
• Proportion of excess: 1,000,000 ÷ 4,000,000 = 25%.
• If realised taxable earnings for the year are $100,000.
• Earnings attributable to excess = 25% × $100,000 = $25,000.
• Division 296 additional tax = 15% × $25,000 = $3,750
• Normal fund tax on $100,000 earnings (if in the accumulation phase) = 15% × $100,000 = $15,000.
• Total tax impact = $15,000 + $3,750 = $18,750.
Planning options to consider with professional advice
• Consider withdrawals (if eligible) to reduce future Division 296 exposure and invest in personal names, where tax advantageous.
• Bring forward intergenerational wealth transfer movements such as:
• Helping adult children to repay home loans,
• Paying for grandchildren’s education,
• Boosting adult children’s superannuation and investment balances and their retirement prospects.
• Withdrawing from super prior to it being paid our through an estate can avoid up to 17% tax on super death benefits paid to non-tax dependents (such as adult children)
• Selling assets now, before the Division 296 applies.
• Consider liquidity to ensure you have funds available to pay the tax.
• Consider Australian shares based investments that obtain imputation credits, this will reduce overall tax liabilities.
• Couples with a combined balance should also review their superannuation now. The potential is that when a spouses passes, the remaining spouse may find this tax will apply to them, if their super balance exceed $3,000,000.
• Review your superannuation arrangements if your balance is getting close to $3,000,000.
All decisions should be modelled with professional financial, tax and legal advice.
Before you act, let’s run the numbers properly. Come and see me so we can make sure every decision strengthens your long term position.
