What is Division 296?
Division 296 is an Australian tax measure introduced to adjust how earnings on superannuation balances above certain thresholds are taxed. It comes into effect from 1 July 2026 (financial year 2026-27). (community.ato.gov.au)
Thresholds:
- Large super balance threshold (LSBT): AUD 3 million. Earnings above this are taxed at 15%. (community.ato.gov.au)
- Very large super balance threshold (VLSBT): AUD 10 million. Earnings above this are taxed an additional 10% on the portion above the VLSBT. (community.ato.gov.au)
If your super balance is $5 million at year-end, only the earnings associated with the amount above the $3 million LSBT are taxed at the higher rate—not your entire super.
Why the Change? Implications for Australians
- Designed to ensure fairness in the taxation of super balances—aligning treatment of those with significantly larger balances.
- Aimed at closing tax concessions on high super balances that previously benefited only a small group.
- Raises incentives for individuals with large balances to review their super accumulation strategies.
Practical Scenarios & Examples
| Scenario | Total Super Balance (TSB) | Tax Treatment on Earnings |
|---|---|---|
| Susan has TSB = AUD 2.5 million | Below LSBT | No Division 296 tax; earnings taxed normally under existing super rules. |
| Michael has TSB = AUD 4.5 million | Above LSBT, below VLSBT | Earnings above AUD 3 million taxed at 15% (portion above threshold only). |
| Emma has TSB = AUD 12 million | Above VLSBT | Earnings above AUD 3 million taxed at 15%, earnings above AUD 10 million taxed extra 10% (i.e. 25% on portion above VLSBT). |
What You Should Do Now
- Check your super balance at year end and estimate expected earnings. If you expect to cross thresholds, consider restructuring contributions or withdrawals before 30 June 2026.
- Diversify retirement assets: Consider investment pathways outside superannuation or income outside the super system for portions exceeding thresholds.
- Keep meticulous records of your super earnings and fund balances.
- Consult a superannuation or tax professional to explore strategies suited to your risk profile and retirement horizon.
Actionable Tax-Planning Tips
- Adjust regular contributions if close to thresholds.
- If nearing the VLSBT, consider adopting more defensive investment options to limit earnings during threshold periods.
- Use non-super investment vehicles (e.g. taxable accounts) for growth once you exceed threshold, to preserve lower earnings tax profiles.
- Review any legislative changes annually, as thresholds and rules may be updated.
Bottom Line
Division 296 starts from July 2026, adds tax on earnings above $3 million LSBT, and extra tax above $10 million VLSBT. Managing super balances and diversifying retirement portfolios can help high-balance members reduce tax impact and make informed financial decisions.