What Has Changed?
- Division 296 Tax will apply from the 2026–27 financial year to super balances that exceed certain thresholds:
- For total super balance (TSB) over $3 million, earnings above that threshold face an additional 15% tax, bringing total tax to 30%.
- For TSB above $10 million, earnings above that level incur a further 10%, leading to 40% total tax. (community.ato.gov.au)
- Payday Super also becomes mandatory from 1 July 2026. Employers must pay super guarantee on each payday—at the same time salary is paid—instead of end-of-quarter payments. Contributions must be received by super funds within 7 business days, unless an extended time is permitted. (softwaredevelopers.ato.gov.au)
Who Must Comply?
- Individuals with super balances above the $3M threshold—SMSFs and retail/APRA-regulated funds included.
- Employers in all sectors (private/public) must update payroll systems to separate qualifying earnings from other pay items.
- Third-party Service Providers and software developers will need to update systems to support payday-based SG contributions, new codes, and real-time or near-real time payments. (softwaredevelopers.ato.gov.au)
Key Compliance Steps for Individuals & Employers
For Individuals / Super Fund Members:
- Monitor your total super balance (across all funds)—includes SMSFs and APRA-regulated funds.
- Keep accurate records of earnings (investment returns) in relation to the thresholds.
- Anticipate assessments: ATO will issue Division 296 tax notices in the second half of 2027–28 after relevant earnings are reported. (community.ato.gov.au)
For Employers / Super Funds:
- Update payroll and contribution systems to calculate SG on each payday.
- Distinguish qualifying earnings (QE)—beyond just ordinary time earnings.
- Super funds must allocate or return contributions within 3 business days.
- Update compliance with SuperStream and New Payments Platform standards. (softwaredevelopers.ato.gov.au)
Example
Employer X has an employee earning $80,000/year plus bonuses and commissions. Starting July: total earnings including bonuses are considered QE. Each payday, Employer X must calculate SG on the entire QE and remit within 7 business days. If the employee’s super balance exceeds $3M, earnings above that threshold will be taxed under Division 296—so that employee’s reported earnings from the fund matter.
Tips to Prepare
- For super fund members near $3M or $10M, model expected investment returns; small changes could push your earnings into higher tax brackets.
- Employers: engage software vendors now to ensure systems support payday SG, reporting of QE, error handling, fund validation, etc.
- Maintain clean records—dates, payroll reports, super statements, and communications from super funds.
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Author: NomadicTax Research Team Category: Compliance Read Time: 5–8 min