Division 296 tax explained: the new tax on super balances over $3 million

Why was Division 296 tax introduced?

Treasury describes 15% as a super fund's concessional tax rate on earnings. Division 296 reduces that concession for people with very large balances. The government first announced the measure in February 2023, revised its design on 13 October 2025, and the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 received Royal Assent on 13 March 2026. The ATO confirms the measure is now law and applies from 1 July 2026.

It affects a small group. Treasury's October 2025 fact sheet says the measure will affect less than 0.5% of Australians with super accounts in 2026–27, and the higher tier above $10 million will affect less than 0.1%. Treasury also notes that tax on super earnings remains concessional compared with personal income tax rates, even for balances above $10 million.

How does Division 296 tax work?

Division 296 tax is worked out by the ATO for each person, not for each fund. In broad terms:

• Total super balance. The ATO adds up the value of all of a person's Australian super interests across every fund, including SMSFs. Amounts relating to limited recourse borrowing arrangements are disregarded for Division 296.
• Large super balance threshold. $3 million for 2026–27. An additional 15% tax applies to the share of earnings linked to the part of the balance above this amount.
• Very large super balance threshold. $10 million for 2026–27. A further 10% applies to the share of earnings linked to the part of the balance above this amount.
• Indexation. Both thresholds are indexed to the consumer price index, in $150,000 and $500,000 increments respectively.

Treasury describes the result as an overall rate of 30% on the share of earnings relating to balances between $3 million and $10 million, and 40% on the share above $10 million, once the fund's own 15% tax is included.

Source: Australian Taxation Office, Division 296 tax on large super balances, and The Treasury, Better Targeted Superannuation Concessions changes, checked 23 October 2026.

When is the $3 million test applied?

Timing matters. For the first year, 2026–27, the ATO only looks at a person's total super balance at the end of the year, 30 June 2027. From 2027–28, the tax can apply if the balance is above the threshold either just before the start of the income year or at the end of it, and the higher of the two is used in the calculation.

The ATO gives examples showing that a balance which is above $3 million for part of a year, but below it at both test dates, does not lead to Division 296 tax for that year. Transitional rules also mean that a person who dies during 2026–27 will never be liable for Division 296 tax for that year.

How are super earnings worked out?

This is the part of the design that changed most. The 2023 proposal worked out earnings from changes in a person's total super balance, adjusted for contributions and withdrawals. In October 2025 the government moved to a realised earnings approach that, in Treasury's words, aligns to existing income tax concepts.

Each fund now calculates its "Division 296 fund earnings", based on its taxable income with some adjustments, and attributes a share to each in-scope member. Funds other than SMSFs provide this when the ATO asks for it. SMSFs report it in their annual return from 2026–27, and the ATO notes that, subject to some exceptions, an SMSF will need to engage an actuary to work out the amount attributable to each member. The ATO then combines the reported earnings and calculates the tax.

What does a worked example from the ATO look like?

The ATO uses the example of a person with one super interest and a total super balance of $4 million at 30 June 2027, whose fund reports $100,000 of earnings for 2026–27.

1. Share of the balance above $3 million: ($4m − $3m) ÷ $4m = 25%.
2. Taxable super earnings: $100,000 × 25% = $25,000.
3. Division 296 tax at 15%: $25,000 × 15% = $3,750.

Source: Australian Taxation Office, How Division 296 tax is calculated, checked 23 October 2026. This is the ATO's illustration of the formula, not an estimate for any individual.

How is Division 296 tax paid?

Once funds have reported, the ATO issues a Division 296 notice of assessment, usually to the person's myGov inbox or to their tax agent. The ATO says the tax is generally due 84 days after the notice is issued. It can be paid personally, or the person can elect, within 60 days of the notice, to have money released from one or more of their super funds. If neither happens, the Commissioner may ask a fund to release an amount to pay the debt.

Tax relating to a defined benefit interest is deferred where an end benefit has not yet been taken, and interest applies to Division 296 tax that is not paid by its due date. The ATO expects the first assessments, for 2026–27, to start issuing in the second half of the 2027–28 income year.

What does Division 296 mean for SMSFs?

Self-managed super funds have extra work. The ATO says SMSF trustees will need to report in-scope members' relevant super earnings in the SMSF annual return from 2026–27, and that a member is in scope where their total super balance across all funds is above $3 million, even if the SMSF itself holds less.

SMSFs can also make a one-off CGT adjustment election. The ATO explains that it resets the cost base of all CGT assets held by the fund at the end of 30 June 2026 to their market value, for Division 296 purposes only. This recognises value that built up before the tax started. The election applies to all of the fund's CGT assets, must be made by the due date of the fund's 2026–27 annual return, and cannot be revoked. It does not need to be lodged with the ATO, but the fund must keep records of it.

The ATO is drafting a law companion ruling and expects to publish draft guidance for consultation later in 2026. More general information is on our SMSF advice page.

Who is excepted from Division 296 tax?

The ATO lists some exceptions. They include children receiving a super income stream, people who have received a structured settlement contribution for a personal injury, and people who die in the 2026–27 income year. Specific rules also apply to certain judges and state office holders, foreign super funds, defined benefit interests and temporary residents who leave Australia.

What do people with large balances often ask about?

Division 296 sits alongside other rules, such as Division 293 tax on contributions for high-income earners. Questions people commonly raise include how the thresholds apply to each member of a couple, how an SMSF's CGT adjustment election works, how super fits with investments held outside super, and how the tax interacts with estate and wealth succession planning.

An adviser may consider any of these, but the answers depend entirely on a person's age, balances, fund structure, family and goals. There is no general rule that suits everyone, and some choices, such as the CGT adjustment election, cannot be undone.

Where personal advice fits

Division 296 is new and technical, and the ATO is still developing guidance on it. Personal advice on how it applies to a particular person is provided by MGB Financial Services. Vermilion Wealth Advisory can arrange a free initial 15-minute chat and an introduction to MGB for people across Sydney and Parramatta. More general information is on our financial planning for high net worth individuals page.