Australia’s controversial Division 296 superannuation tax has officially passed the Senate on 11 March 2026, introducing a new layer of taxation for individuals with very large super balances.
The reform targets members with more than $3 million in superannuation and is expected to affect only a small portion of Australians initially, but it represents a significant structural change to how large super balances are taxed.
What is Division 296?
Division 296 introduces an additional tax on superannuation earnings attributable to balances above $3 million. The measure is designed to reduce tax concessions for very large retirement savings accounts.
Under the legislation, individuals with a total super balance above $3 million will face an additional 15% tax on earnings linked to the portion of their balance above that threshold.
For extremely large balances above $10 million, a second tier applies: an additional 10% tax on that slice of earnings. Importantly, these taxes apply on top of the existing taxes already paid by the super fund.
The new rules apply from 1 July 2026, although the Australian Taxation Office will not issue first assessments until after 30 June 2027.
Key changes from the original proposal
The legislation that ultimately passed Parliament differs in several important ways from the original proposal put forward by the government.
The most significant change was the removal of taxation on unrealised gains. Earlier drafts of the policy would have taxed increases in asset values even if those assets had not been sold. Industry groups argued this could create liquidity issues for super funds holding property or private investments.
In the final legislation, unrealised gains are no longer taxed directly. This change was widely viewed as the industry’s biggest win during the consultation process.
The final law also introduced indexation to the $3 million threshold (with the exact indexation mechanism to be confirmed) and created a second tier of taxation for balances above $10 million.
How the threshold calculation works
The way the taxable proportion of a super balance is calculated will change depending on the year, which has important planning implications.
In the first year of the regime, the proportion of a member’s balance above the $3 million threshold is determined solely using their total super balance at 30 June 2027. The opening balance for the year is ignored.
From the second year onward, the proportion is calculated using the higher of the member’s opening or closing total super balance. This rule is designed to prevent members from temporarily withdrawing funds near the end of the financial year to reduce their taxable exposure.
Planning implications
For individuals approaching or exceeding the $3 million threshold, the transition period before the new tax fully takes effect creates several planning considerations.
Members should closely monitor their total super balance leading up to 30 June 2027, as this date will play a critical role in determining the initial exposure to Division 296.
Self-managed super fund (SMSF) trustees may also consider whether to elect into the available cost base reset for fund assets, review the level of liquidity held within the fund, and evaluate the long-term structure of investments inside super.
However, advisers generally caution against making rushed withdrawal decisions before fully understanding the long-term implications of the new rules.
The bottom line
Division 296 represents one of the most significant changes to Australia’s superannuation tax framework in recent years. While the number of affected individuals is relatively small today, the policy signals a broader shift toward limiting tax concessions for very large retirement balances.
For high-balance members and SMSF trustees, the next 12-18 months will be a critical period for reviewing strategies and ensuring their super structures remain efficient under the new rules.
IMPORTANT INFORMATION
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your MartinCo accountants. Information is current at the date of issue and may change.
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