Division 296 Tax Explained: What the $3 Million Super Tax Means for You

by Nasser ZreikaAug 19, 2026Superannuation

Division 296 tax is a new tax that applies from 1 July 2026 to Australians with a total superannuation balance above $3 million. It adds an extra 15% tax on the portion of investment earnings linked to the amount over $3 million (rising to an extra 25% above $10 million), on top of the 15% earnings tax already paid inside super. For most Australians it won’t apply at all — but if you’re a business owner, professional, or long-term SMSF trustee sitting near or above that threshold, it’s worth understanding well before your first assessment lands in 2027–28.

What Is Division 296 Tax?

Officially called the Better Targeted Superannuation Concessions tax, Division 296 targets earnings linked to large superannuation balances rather than the balance itself. It’s based on your Total Superannuation Balance (TSB) across all your super accounts, including any SMSF. The legislation has passed both Houses of Parliament and commences on 1 July 2026.

After significant industry consultation, the final version taxes only realised earnings — interest, dividends, rent, and capital gains actually received by the fund — rather than paper gains on assets you haven’t sold. That was the most controversial part of the original 2023 proposal, and it was removed before the law passed.

When Does It Start, and Who Gets Assessed First?

The tax applies to earnings from 1 July 2026 onward, but a transitional rule softens the first year: for 2026–27, whether you’re liable depends solely on your TSB at 30 June 2027, rather than a comparison across two dates.

First assessments are expected to land in the 2027–28 financial year. From 2027–28 onward, the ongoing rule compares your TSB at the start and end of each financial year, so a balance that dips below $3 million partway through the year can still trigger a liability if it was above the threshold at the relevant test date.

How Much Extra Tax Will You Pay?

Balances between $3 million and $10 million: an additional 15% tax on the relevant portion of earnings — an effective 30% rate on that slice, versus the usual 15%.
Balances above $10 million: an additional 25% — an effective 40% rate on that portion.
Both thresholds are indexed — the $3 million threshold rises in $150,000 increments and the $10 million threshold in $500,000 increments, in line with the Transfer Balance Cap, so they won’t stay fixed forever.

How Is It Actually Calculated?

The tax only applies to the proportion of your earnings that relates to the amount of your balance sitting above $3 million — not your whole balance and not your whole year’s earnings. Here’s a simplified illustration:

Say a member has a total super balance of $4 million, and their fund reports $200,000 in realised earnings for the year. A quarter of that balance ($1 million of the $4 million) sits above the $3 million threshold, so roughly 25% of the year’s earnings — about $50,000 — is the portion subject to the extra tax.

At an additional 15%, that’s an extra tax bill of around $7,500 on top of the normal 15% earnings tax. The bigger the share of a balance sitting above $3 million, the larger the share of earnings exposed to the higher rate.

Does This Apply to SMSFs?

Yes. SMSF trustees are liable in exactly the same way as members of retail or industry funds, based on their personal share of the fund’s balance — even if the fund overall holds more than $3 million, only members whose individual TSB exceeds the threshold are affected.

This is worth particular attention for SMSF trustees holding illiquid assets such as commercial property or unlisted shares, since funding a Division 296 liability may require planning ahead for cash flow rather than being forced into a rushed asset sale.

What Should You Do Before Your First Test Date?

If your balance is likely to sit above $3 million by 30 June 2027, it’s worth reviewing your position well ahead of time rather than reacting afterward. Common areas worth discussing with an adviser include:

Whether spouse contribution splitting could help even out balances between partners and reduce combined exposure
How fund liquidity would cope with an SMSF Division 296 release authority if illiquid assets are involved
Whether continuing to contribute still makes sense for your circumstances, given contributions themselves aren’t taxed under Division 296
How this interacts with your broader retirement income and estate planning

This article is general information only and doesn’t take into account your personal objectives, financial situation, or needs. Division 296 is genuinely complex, particularly for SMSF trustees, so it’s worth getting advice specific to your circumstances before making any changes.

Frequently Asked Questions

Does Division 296 tax apply to unrealised gains?

No. The final legislation only taxes realised earnings — income actually received by the fund, plus realised capital gains on assets that have been sold. Paper gains on assets you still hold are excluded, which was a major change from the original 2023 proposal.

Will the $3 million threshold ever increase?

Yes. Both the $3 million and $10 million thresholds are indexed, rising in $150,000 and $500,000 increments respectively, in line with the Transfer Balance Cap.

Does Division 296 replace the normal super earnings tax?

No, it’s additional. The usual 15% tax on earnings inside super still applies; Division 296 adds a further 15% or 25% on top, but only on the portion of earnings linked to the amount of your balance above $3 million.

I have an SMSF with commercial property — am I affected?

Possibly, if your personal TSB exceeds $3 million. SMSF trustees are liable the same way as other fund members, but illiquid assets like property can make funding the tax more complex, so it’s worth reviewing your fund’s liquidity position in advance.

When will I get my first Division 296 tax bill?

Based on your Total Superannuation Balance at 30 June 2027, with the first assessments expected during the 2027–28 financial year.

If you hold a large super balance and want to understand how Division 296 fits into your retirement and SMSF strategy, our Adelaide-based advisers can walk through your numbers and options before your first test date arrives.