What The Introduction of Division 296 Tax Will Mean for Australians

From 1 July 2026, a new tax known as Division 296 will apply to Australians with superannuation balances exceeding $3 million.

While this new rule will only affect a relatively small portion of Australians initially, anyone with a large super balance, or who is on track to build one over time, should understand how the changes work and what they could mean for your financial plan.

Let’s break down how Division 296 tax works, who it affects, and what it might mean for your long term financial strategy.

What Is Division 296 Tax?

Division 296 is a new tax designed to reduce superannuation tax concessions for individuals with ‘large’ super balances.

Beginning 1 July 2026, if your total superannuation balance (TSB) exceeds $3 million at the end of the 2026/27 financial year, you will be subject to an additional 15% tax on the proportion of your earnings that are attributable to the balance amount over that threshold.

This new tax uses a proportional formula to determine what share of your total super earnings relates to the portion of your balance above $3 million, and applies the additional tax only to that amount.

Consider the following example:

If your total super balance is $4 million, then 25% of your balance exceeds the $3 million threshold.

If your super generates $200,000 in earnings for the year, then 25% of those earnings would be attributed to the excess balance. In this case, that would be $50,000.

Division 296 tax would therefore apply at 15% to that $50,000, resulting in an additional personal tax liability of $7,500.

Important Things to Know about Division 296 Tax

Division 296 is not a cap on how much you can hold in superannuation, nor does it tax your entire super balance. This new tax only applies to the earnings generated from the portion of your balance that exceeds the $3m threshold.

Although the tax calculation is based on your superannuation balance and earnings, Division 296 is a personal tax liability, not a tax paid by the super fund itself. The assessment is issued to you personally, although you may be eligible to have an amount released from your super fund for the purpose of paying said tax, if required.

How Is My Balance Measured?

Your total super balance is measured across all superannuation funds you may have, not just a single fund. For the first financial year of operation (2026/27), Div 296 will be calculated based on your total super balance as at 30 June 2027.

From that point onward, the rules become slightly broader. Future calculations will use whichever is higher: your balance at the start of the financial year or your balance at the end of the financial year. This is designed to prevent temporary balance reductions to avoid the tax.

What Counts as ‘Earnings’?

For Division 296 purposes, earnings broadly include interest, dividends, rental income, trust distributions, franking credits, and realised capital gains when assets are sold.

Unrealised gains are not included. Meaning increases in asset values are not taxed until the asset is actually sold. This marks a significant change from earlier proposals, and brings the legislation more in line with actual realised investment income, rather than paper gains.

What If I Have an SMSF?

If you have a Self Managed Super Fund (SMSF), Division 296 does not apply to the fund as a whole. Instead, earnings are first calculated at the fund level and then allocated between members based on their share, with each member only paying the tax on their portion of earnings.

For SMSFs with multiple members, this distinction is particularly important. One member may be subject to Division 296 while another may not be, even though both hold investments within the same fund.

Make sure you are carefully considering member balances, contribution strategies, pension commencements and how assets are structured within the fund. Although Div 296 Tax is assessed personally, rather than at the fund level, it may still influence broader SMSF planning and administration moving forward.

What Should I Do Now?

For most Australians, nothing. You likely won’t be impacted immediately, with many individuals not impacted at all.

While Division 296 may reduce some of the tax advantages of holding larger balances in super, it certainly doesn’t remove the strategic benefits of superannuation altogether. Superannuation remains a highly effective wealth structure even where the additional tax applies and, in many cases, may still outperform alternative investment structures even with the additional tax.

For some, Div 296 may prompt a review of your existing strategy, which is no bad thing. Depending on your circumstances, now could be the time to reassess your contribution strategies, review your investment structure, or consider appropriate withdrawals from your super (where eligible).

As with most major tax changes, the right response will depend on your broader financial position, lifestyle and goals, not just your super balance in isolation. Our team of accredited Super Specialists are here to help you understand Div 296 in its entirety, and the next steps you should take.

Help! Where Do I Go From Here?

If your super balance is approaching (or already exceeds) $3 million, now is the time to understand your position and explore your options before the new tax takes effect.

At BISCosgrove, we help look beyond the headlines and make informed, strategic decisions. That includes assessing your projected exposure, modelling different scenarios, and reviewing your broader structuring options to ensure your strategy remains both tax-effective and aligned with your financial goals.

If you want to know more about how Division 296 may affect you, get in touch with our team to discuss your circumstances and we’ll take care of the rest!

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_{^{The material and contents provided in this publication are general and informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained}}.