From 1 July 2026, a significant change to superannuation taxation is scheduled to take effect. Known as Division 296 tax, this new measure introduces an additional tax on earnings relating to superannuation balances exceeding $3 million. If your super balance is approaching or above this threshold, or could be in the future, it’s worth understanding how the rules work and what planning opportunities may be available to you.
What is Division 296 tax?
Simply, Division 296 introduces an additional tax on earnings relating to superannuation balances exceeding $3 million. This tax is applied to you personally (not your super fund) and is broadly calculated based on:
- The proportion of your super balance above $3 million; and
- The investment earnings attributed to your super
It’s important to note that this doesn’t limit how much you can hold in super. However, it does mean that the tax advantages of super reduce once balances move above this level.
How is the tax worked out?
There is a formula used to calculate the tax:
- 15% × proportion of your super over $3 million × earnings
- Plus 10% × proportion of your super over $10 million × earnings
While this may sound complex, the key point is that the tax only applies to a portion of your earnings, based on how much your balance exceeds the thresholds.
An example above 3 million but less than 10 million:
Let’s say your total super balance is $4 million. That means $1 million is above the $3 million threshold.
If your super fund earns $100,000 in a year, only a portion of those earnings will be subject to the additional tax. In this case:
- 25% of your balance is above $3 million ($1m ÷ $4m)
- So, 25% of the earnings ($25,000) are subject to Division 296
- The additional tax is 15% of that amount
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This results in an extra tax of $3,750.
An example balances over 10 million:
Let’s say your total super balance is $12 million. In this case:
- The portion above $3 million is $9 million (75% of your balance)
- The portion above $10 million is $2 million (16.67% of your balance)
If your super fund earns $600,000 in a year:
- 75% of the earnings ($450,000) is subject to 15% tax
- 16.67% of the earnings ($100,020) is subject to an additional 10% tax
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This results in total additional tax of approximately $77,500.
Key dates & planning window
Division 296 starts from 1 July 2026, but the first time it is assessed is 30 June 2027.
This means your super balance at 30 June 2027Â will determine whether you are impacted in the first year.
Why this matters:
- There is a planning window between now and 30 June 2027
- Actions taken before this date may influence your exposure to the tax
- This is the most flexible year for planning
What changes after that?
From the 2027–28 financial year onwards:
- The calculation uses the higher of your opening (1 July) or closing (30 June) balance
- Reducing your balance late in the year may not reduce your tax outcome
- Planning opportunities become more limited
Who should be thinking about this?
You may want to review your position if:
- Your total super balance is approaching or exceeds $3 million, or
- You and your spouse each have balances near or above $3 million
Even if you’re below the threshold today, it’s still worth being aware. Super balances can grow over time, and events like inheritances or pension reversions can push balances higher than expected.
Resetting the cost base – a key planning opportunity
One of the more important features of the new rules is the ability for SMSFs to reset the cost base of assets at 30 June 2026, if an election is made.
This means:
- Only capital gains accrued after 30 June 2026 would be counted for Division 296 purposes
- Gains that have built up before this date may effectively be excluded.
For clients with assets that have grown significantly over time, this could make a meaningful difference to future tax outcomes.
That said, this decision needs careful consideration:
- It applies to all assets in the fund (you can’t pick and choose)
- It may not be beneficial where assets currently have unrealised losses
- Once made, the decision can’t be reversed
Strategic considerations
Depending on your circumstances, there may be planning opportunities worth exploring, including:
- Whether to elect the cost base reset
- Whether partial withdrawals from super are appropriate
- Reviewing investment structures outside of super
- Considering the timing of asset disposals
- Reviewing estate planning strategies, particularly for couples
It’s also important to keep in mind that super is still likely to remain a very tax-effective environment, even with these changes. Decisions should be made in the context of your overall strategy, not just this one tax.
What should you do next?
At this stage, we suggest:
- Reviewing your current and projected super balance
- Considering whether your balance (or combined with your spouse) may exceed $3 million over time
- Seeking advice on whether early planning strategies may be appropriate before 30 June 2026
We’re here to help
Division 296 introduces some new complexity, but also some planning opportunities.
If you’d like to understand how this may apply to you, we’d be happy to talk it through and help you decide whether any action is needed.
Please feel free to contact our office to arrange a time.
Disclaimer:
Any provided workings in this article are a simplified example for illustrative purposes only. Actual outcomes will vary depending on your individual circumstances, including your total super balance, earnings, and any additional Division 296 rules that may apply.
