Division 296 is now law and will apply from 1 July 2026 to Australians whose total super balance exceeds $3 million at year-end. It is designed to tax a portion of superannuation earnings linked to high balances, which is why it has become such an important planning issue for SMSF trustees and high-balance super members.

This guide explains who it applies to, how the calculation works, what changed in the final rules, and what it means for people with large super balances.

What Is Division 296 Tax and Why Does It Matter?

Division 296 is an additional tax that applies to individuals with a total superannuation balance above $3 million. It is separate from the tax that already applies inside super and is aimed at reducing the concessional treatment of very large balances.

The tax applies to a proportion of your earnings, not your entire super balance. That means people just over the threshold will generally only have part of their earnings subject to the extra tax, while those with much larger balances will be affected more heavily.

Who Does Division 296 Tax Update Apply To?

Division 296 applies to individuals whose total super balance exceeds $3 million at 30 June from 2026 onwards. Your total super balance includes all super accounts you hold, across all funds, not just an SMSF.

There is no age exemption and no exemption for pension phase. If your combined balance is above the threshold, the rules can apply regardless of whether you are still accumulating or already drawing a retirement income stream.

Defined benefit interests are also included, but they are worked out differently under the legislation. If you have a defined benefit entitlement, it is worth getting advice on how it is treated in your circumstances.

How Is the $3 Million Threshold Calculated?

The $3 million threshold is based on the market value of your super at 30 June each year. It is not based on how much you originally contributed or what your balance used to be.

The threshold is also not indexed. That means it stays at $3 million unless the law changes, so more people may fall within scope over time as super balances grow.

For people currently below the threshold, the issue is often timing. Even if you are not affected today, steady investment growth can bring you into range later.

How Is Division 296 Tax Calculated?

Division 296 tax is calculated using a formula that compares your closing super balance with your opening balance, then adjusts for contributions and withdrawals.

In simple terms:

• • Start with your 30 June balance.
  • Subtract your previous 30 June balance.
  • Add back withdrawals.
  • Subtract contributions.

That gives a measure of your earnings for the year. A proportion of those earnings is then attributed to the part of your balance above $3 million, and the tax is charged at 15% on that amount.

A worked example makes this clearer. If your balance opens at $4 million and closes at $4.5 million, with $50,000 of contributions and no withdrawals, your adjusted earnings are $450,000. If one-third of your closing balance sits above $3 million, then one-third of the earnings are attributed to the excess balance. The additional Division 296 tax would then be applied to that portion.

The Unrealised Gains Issue: What You Need to Know

Division 296 tax applies to realised earnings only, which is consistent with how income tax already treats investment gains. A fund’s liability is worked out from actual realised income and capital gains, not a comparison of opening and closing balances, so an asset that has simply gone up in value on paper doesn’t trigger a tax bill.

The $3 million threshold isn’t fixed. It will be indexed over time, as will the new $10 million threshold that applies a further tax rate above that level. Indexation is meant to stop funds being caught by the tax purely because of inflation, rather than because members are genuinely accumulating larger balances.

SMSFs were also given a one-off opportunity to reset the cost base of fund assets to their market value. This means that when an asset is eventually sold, only the growth that occurred after the scheme’s start date is captured for Division 296 purposes, and gains built up before then are protected.

Division 296 tax remains a significant planning priority for high-balance funds. Working with a qualified SMSF accountant is still essential, particularly to make sure the cost base reset has been applied correctly and is properly documented before any future asset sale.

When Is Division 296 Tax Assessed and Paid?

Division 296 tax is assessed the year after the relevant financial year. A liability arising in 2025/26 will be assessed by the ATO in 2026/27. Once an assessment is issued, you have 84 days to make payment.

The assessment is sent to the individual, not to the fund. This matters because you have a choice about how to pay it. You can pay from personal funds and leave your super intact, or you can release the amount from your superannuation using a release authority provided by the ATO. Many advisers recommend modelling both options before the assessment arrives, because the tax treatment of funds outside super varies significantly depending on what you do with them.

What Does Division 296 Tax Mean for SMSF Trustees Specifically?

SMSF trustees need to pay particular attention because SMSFs often hold less liquid assets such as property, unlisted investments, or business real property. That can make any extra tax liability harder to manage if the fund does not have enough cash on hand.

The bigger issue for SMSFs is planning. Trustees should review asset allocation, liquidity, contribution strategy, and estate planning structures well before the tax first applies.

If a fund holds a concentrated or illiquid asset base, the question is not just how much tax may be payable, but how the liability will be funded without forcing an unnecessary sale.

Practical Planning Considerations

If your balance is already near or above $3 million, several strategies may be worth discussing with an adviser.

• • Contribution timing can matter, especially around 30 June.
  • Spouse contribution strategies may help manage future growth in one member’s balance.
  • Asset allocation may affect how exposed you are to large year-to-year valuation changes.
  • Pension drawdowns and withdrawal timing may also influence the calculation.

For some people, doing nothing may still be the best choice. Super can remain tax-effective even with the extra Division 296 charge, depending on your marginal tax rate and what alternative investments would look like outside super.

What Are Your Options If Your Balance Exceeds $3 Million?

There is no single right answer, and the best approach depends on your age, your income, your fund’s asset mix, and your longer-term goals. What follows is a framework for thinking through the options before you sit down with your adviser.

If you are already drawing a pension:

Withdrawing excess balances above $3 million is worth serious consideration. The tax on those funds outside super will depend on where you invest them and your marginal rate. Many clients find that after modelling the comparison, the result is not as straightforward as they expected. Superannuation remains tax-advantaged even at the 30% rate for excess earnings, depending on the alternative.

If you are still accumulating and approaching $3 million:

The conversation shifts to contribution pacing, asset location, and whether your current trajectory is optimal. Directing future contributions to a spouse’s fund, where balances are lower, may be part of the strategy. The timing of large one-off contributions also matters given the annual 30 June snapshot.

If your SMSF holds illiquid assets such as property:

The unrealised gains issue becomes your most immediate planning priority. Understanding how the deferral mechanism interacts with your estate plan and whether property valuations are being managed appropriately is essential. This is not a theoretical concern for property-heavy SMSFs. It is a practical cash flow and succession issue.

If your balance is between $2 million and $3 million:

The planning conversation is still relevant. Given the non-indexation of the threshold and the compounding effect of investment returns, understanding your projected timeline to the threshold allows you to make structural decisions now rather than reacting later. The time to prepare is before you cross the threshold, not after. Understanding why a one-size-fits-all approach to retirement doesn’t work is a useful starting point for thinking about your own position.

Doing nothing may still be appropriate. For some individuals, particularly those with strong liquidity, diversified portfolios, and high existing marginal rates, accepting the Division 296 tax and maintaining the super environment may be the most effective outcome after modelling. The additional 15% does not automatically make super a poor choice. It depends on the comparison.

Frequently Asked Questions

Does Division 296 apply to my whole super balance?

No. It applies proportionally to the earnings linked to the amount above $3 million, not to your entire balance.

Does it apply in pension phase?

Yes. Pension phase does not remove you from the rules.

What if my balance later falls below $3 million?

Division 296 is tested annually at 30 June. If your balance is below the threshold in a later year, you would not be caught for that year.

Can I use contribution splitting or spouse strategies?

Yes, those strategies may help manage future exposure, but they do not remove a liability that has already arisen.

Planning Now, Not Later

Division 296 is now part of the superannuation landscape. The decisions you make about your super structure today, including contribution pacing, asset location, spousal strategies, and estate planning, will shape your exposure for years to come. Even if you are comfortable with your current position, understanding how your fund’s projected growth interacts with a non-indexed $3 million threshold is the starting point for every informed conversation with your adviser.

The team at Rhythm Financial works closely with SMSF trustees and high-net-worth individuals across Brisbane and South East Queensland to navigate exactly these kinds of structural changes.

If you would like to assess your personal exposure and explore the options available to you, we invite you to get in touch for a conversation.