From 1 July 2026, a new tax applies to Australians with superannuation balances above $3 million. Division 296 tax is now law — and if your total super balance is approaching that threshold, you need to understand what it means and start planning now.
Want a quick estimate first? Try our Division 296 tax calculator to see the additional tax on the earnings of your super balance above $3 million.
This guide explains exactly how Division 296 works, who it affects, how the tax is calculated, and what SMSF members with large balances should be doing right now to manage their exposure. For a deeper, action-focused walkthrough, see our guide on Division 296 for business owners and SMSF trustees.
What Is Division 296 Tax?
Division 296 is a measure introduced by the Australian Government to reduce the tax concessions available to individuals with very large superannuation balances. The name refers to the division of the Income Tax Assessment Act 1997 that contains the new rules.
In simple terms: if your total superannuation balance (TSB) exceeds $3 million at the end of a financial year, you will pay an additional 15% tax on the super earnings attributed to the portion of your balance above that threshold. Combined with the existing 15% earnings tax that super funds already pay in accumulation phase, the effective tax rate on those earnings rises to 30%.
For members with balances above $10 million (the Very Large Super Balance Threshold, or VLSBT), an additional 10% Division 296 tax applies on top — bringing the effective total tax rate on earnings from that portion to 40%.
Division 296: The Legislative Journey — Now Confirmed Law
Division 296 had a long and contested legislative history. The measure was first proposed in the 2023-24 Federal Budget as the “Treasury Laws Amendment (Better Targeted Superannuation) Bill.” In its original form, the Bill attracted significant controversy because it proposed to tax unrealised capital gains — meaning SMSF members could face a tax liability on paper gains from assets they had not yet sold, including illiquid assets such as commercial property or unlisted shares.
The original Bill failed to pass the Senate. A revised version — the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 — was reintroduced in early 2026 with a significant and important change: unrealised capital gains were removed from the earnings definition.
This revised Bill passed the House of Representatives on 5 March 2026 and the Senate on 10 March 2026. The Building a Stronger and Fairer Super System Act 2026 received Royal Assent on 13 March 2026 and is now law. Division 296 tax applies from 1 July 2026.
How Division 296 Tax Works
The thresholds
For the 2026-27 financial year:
- Large Super Balance Threshold (LSBT): $3,000,000
- Very Large Super Balance Threshold (VLSBT): $10,000,000
Both thresholds apply to your total superannuation balance (TSB) — the sum of all your super interests across all funds (not just your SMSF), measured at 30 June each year. If your TSB exceeds the LSBT, Division 296 applies to the portion above it.
What earnings are taxed?
Under the final law — crucially different from the original proposal — Division 296 applies to realised earnings only. This includes:
- Dividends received
- Interest income
- Rental income
- Realised capital gains (assets that have been sold)
Unrealised capital gains — increases in the paper value of assets you still hold — are not included. This was the most contentious element of the original proposal, and its removal was a significant concession in the revised legislation.
How the tax is calculated — the proportion method
Division 296 tax is not applied to all of your SMSF’s earnings. Only the proportion of earnings attributable to the balance above the $3 million threshold is subject to the additional tax. The calculation works as follows:
- Calculate the proportion of your TSB that exceeds the LSBT: (TSB – LSBT) ÷ TSB
- Apply that proportion to your realised earnings for the year
- Apply 15% Division 296 tax to that amount
Worked example: $4.5 million TSB
Assume: TSB at 30 June 2027 = $4,500,000. Realised earnings for the year = $180,000 (comprising dividends, interest, rent, and realised capital gains on shares sold during the year).
- Amount above LSBT = $4,500,000 – $3,000,000 = $1,500,000
- Proportion = $1,500,000 ÷ $4,500,000 = 33.33%
- Earnings subject to Division 296 = 33.33% x $180,000 = $60,000
- Division 296 tax = 15% x $60,000 = $9,000
The ATO calculates and issues the Division 296 tax assessment to the individual (not the fund). Members can choose to pay the tax personally or elect to release funds from their super to meet the liability.
Who Is Actually Affected?
Division 296 applies to any individual whose total superannuation balance at 30 June exceeds $3 million — across all super funds, not just SMSFs. Estimates suggest this currently affects approximately 80,000 to 100,000 Australians, representing around 0.5% of super fund members.
The group most commonly affected includes:
- Business owners who have accumulated significant SMSF balances, often through commercial property held in super
- High-income professionals (doctors, lawyers, engineers, executives) who have maximised super contributions over a long career
- Retirees who built substantial super balances before the introduction of transfer balance caps
- Farmers and property owners whose SMSF holds real property with significant unrealised (but now also realised) gains
The inflation indexing problem — more Australians will be caught over time
One of the most significant policy concerns with Division 296 is that the $3 million threshold is not indexed to inflation. Over time, as super balances grow through both investment returns and ongoing contributions, more Australians will be caught by this threshold. The government has stated it will consider indexation in future, but at present there is no legislative commitment to index the LSBT.
For younger high-income earners who are diligently maximising their super contributions, a $3 million balance by retirement is an increasingly realistic prospect — particularly over a 30 to 40 year working career. If you earn above $250,000 and are maximising your super contributions, you may also face Division 293 tax on top of your usual super contributions tax. Division 296 planning should therefore not be seen as exclusively a problem for those who are already above the threshold. If you are on track to approach $3 million, understanding the implications now gives you far more options.
Key Issues for SMSF Members to Consider
Liquidity planning for illiquid assets
SMSF members whose funds hold illiquid assets — commercial property, unlisted shares, or private business interests — face a particular challenge. Even though Division 296 (in its final form) does not tax unrealised gains, rental income from commercial property is still a realised earning that will be subject to the tax if the member’s TSB exceeds $3 million.
If the SMSF is generating rental income from a commercial property worth $3 million, and the total TSB is above the LSBT, the Division 296 tax assessment will need to be paid — either from personal funds or by releasing cash from super. If the fund does not have sufficient liquid assets to fund the release, this can create cash flow pressure. Planning for this liquidity requirement well in advance is essential.
Contribution strategy review
For members approaching (but not yet above) the $3 million threshold, it may be worth reviewing contribution strategies. Continuing to maximise contributions into a fund that will soon be subject to Division 296 tax may be less tax-efficient than alternative wealth-building approaches. A licensed SMSF financial adviser, in consultation with your tax adviser, can model the after-tax outcomes of different contribution scenarios.
Pension phase and the tax-free earnings benefit
Members who have commenced a pension from their SMSF may have some assets in pension phase where earnings are currently tax-free. However, Division 296 applies based on the total superannuation balance, not just the accumulation phase balance. Members in pension phase who have a TSB above $3 million will still be assessed for Division 296 tax. The interplay between pension phase and Division 296 is an area requiring specific advice.
What Should You Do Now?
If your total superannuation balance is above, or approaching, $3 million, here are the key actions to consider:
- Review your SMSF’s investment mix — understand what realised earnings your fund is likely to generate each year and model the potential Division 296 liability
- Assess liquidity — ensure the fund holds sufficient liquid assets to fund Division 296 tax payments without forced asset sales
- Review your contribution strategy — consider whether it remains optimal to maximise contributions into super, or whether alternative structures may deliver better after-tax outcomes
- Consider your pension structure — the transfer balance cap still applies, and pension phase planning remains important alongside Division 296 considerations
- Get specialist tax and financial advice — Division 296 planning requires both tax expertise (Pinnacle can assist with this) and financial advice from a licensed SMSF financial adviser
How Pinnacle Helps SMSF Members Navigate Division 296
At Pinnacle Accounting & Advisory, Mina Baselyous (CPA + CTA) works directly with SMSF clients who are affected by — or approaching — the Division 296 threshold. Our work includes:
- Modelling Division 296 tax exposure for your specific TSB and investment mix
- Reviewing your SMSF’s liquidity position and planning for tax payment obligations
- Contribution strategy review in light of Division 296 and other super caps
- Coordination with your licensed SMSF financial adviser and auditor as part of your wider advisory team
- Annual SMSF tax return preparation and compliance
- SMSF establishment — if you are considering setting up an SMSF for the first time, we ensure the structure is optimised for Division 296 from day one
- LRBA compliance — if your SMSF holds or is considering property via a Limited Recourse Borrowing Arrangement and bare trust, we review the structure for compliance and tax efficiency
We work alongside your licensed SMSF financial adviser — not instead of them. For questions about investment strategy and whether to remain in super, you will need financial advice. For the tax planning and compliance side, Pinnacle is here to help.
Book a consultation to discuss how Division 296 affects your SMSF and what planning steps make sense for your situation. You may also find our SMSF services page useful for understanding the full scope of what Pinnacle provides.
Frequently Asked Questions — Division 296
Has Division 296 actually passed? Is it definitely law?
Yes. The Building a Stronger and Fairer Super System Act 2026 received Royal Assent on 13 March 2026 and is now Australian law. Division 296 tax applies from 1 July 2026. There is no further legislative uncertainty — this is no longer a proposal.
Does Division 296 tax unrealised capital gains?
No — and this is a critical difference from the original proposal. The final law taxes realised earnings only: dividends, interest, rent, and realised capital gains on assets that have been sold. Unrealised capital gains — the increase in value of assets you still hold — are not included in the Division 296 earnings calculation. This was the most controversial element of the original Bill and was removed from the final legislation.
Who pays the Division 296 tax — the SMSF or me personally?
The ATO calculates Division 296 tax and issues an assessment to the individual member, not the fund. You can pay the tax from your personal funds, or you can elect to release money from your super to pay it. If you elect to use super funds, the ATO will instruct the trustee to release the amount. This is an important distinction — it means the SMSF’s assets are not automatically reduced; the liability lands with you personally first.
Will the $3 million threshold increase with inflation?
Not at present. The $3 million Large Super Balance Threshold is not indexed to inflation under the current law. Future governments may choose to index it, but there is no current legislative commitment to do so. This means more Australians will be caught by Division 296 over time as super balances grow.
I am in pension phase. Does Division 296 still apply to me?
Yes. Division 296 applies based on your total superannuation balance, which includes both your accumulation interests and the value of your pension interests. Being in pension phase does not exempt you from Division 296 if your TSB exceeds $3 million. The specific tax treatment of earnings in pension phase and the interaction with Division 296 is complex — speak with a qualified tax adviser for advice specific to your situation.
Can I just withdraw my super to get below $3 million?
This is a question many affected members are asking. The short answer is: it depends on your circumstances. If you are past preservation age and meet a condition of release, you can withdraw from super. However, withdrawals may have their own tax implications, and money withdrawn from super loses access to the concessional tax environment permanently. Whether this makes sense for you depends on your overall wealth, your age, and your expected earnings both inside and outside super. This requires specific financial and tax advice — not a decision to be made without modelling the full after-tax outcomes.
Frequently Asked Questions
What is Division 296 tax?
Division 296 is an additional 15% tax on the earnings attributable to the portion of an individual’s total superannuation balance above $3 million. It applies from 1 July 2026 and targets very large super balances, on top of the existing 15% tax on earnings within super.
Who does Division 296 affect?
It affects individuals whose total superannuation balance exceeds $3 million. Those below the threshold are unaffected. Because it includes notional earnings on the balance above $3 million, SMSF members with large or property-heavy funds should model the impact carefully.
How is Division 296 tax calculated?
The tax applies an extra 15% to the proportion of earnings relating to the part of your total super balance over $3 million, including certain unrealised gains. The ATO calculates it based on the movement in your total super balance across the year, adjusted for contributions and withdrawals.
What should SMSF members do about Division 296?
If your balance is near or above $3 million, model the likely impact, review your investment and contribution strategy, and consider whether holding certain assets inside super still makes sense. Planning with a specialist SMSF adviser is strongly recommended.
This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.
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