Overview of Division 296 Tax
The Division 296 tax is a newly enacted law targeting individuals whose Total Superannuation Balance (TSB) exceeds $3 million in the 2026-27 financial year. Earnings on super above that threshold may incur an extra 15% tax, and for balances over a $10 million threshold (the Very Large Super Balance Threshold), an additional 10% may apply. (csc.gov.au) Assessments under Division 296 begin from the year ended 30 June 2027.
Who Needs to Know
- Individuals with super balances over $3 million: subject to extra tax on a portion of their earnings.
- Those over $10 million: even more exposed.
- Executors of estates, beneficiaries, or individuals approaching retirement who expect super balances to be large.
- Super funds themselves, though the liability is assessed on individuals, not funds.
Key Obligations and Actions for Compliance
- Tracking your Total Super Balance (TSB): All super accounts counted toward TSB—funds, investment returns, etc. Records must accurately reflect valuations.
- Declarations and reporting: The ATO will calculate extra tax, but individuals must ensure super funds are providing correct information.
- Adjust investment strategies: For balances near thresholds, consider investment allocations that may reduce taxable earnings.
Practical Examples
- Example 1: Sarah has $2.8 million in super. She earns $150,000 in super earnings this year. Since she is under $3 million, she pays the standard 15% accumulation tax.
- Example 2: Michael has $4 million. Earnings over $3 million are split out, taxed at extra 15%. If part of his balance is over $10 million, that portion is taxed at an extra 10% beyond the base.
Implications for Financial Planning
- Consider timing withdrawals or rollovers if close to threshold—though withdrawal opportunities are regulated.
- Review asset mix in super funds to perhaps marginally reduce earnings in years near threshold exposure.
- Plan for the extra tax in retirement cash flow projections, especially for those planning to live partially off super earnings.
Actionable Steps
- Contact your superfund to request TSB statements and projections.
- Meet with a financial adviser to model “threshold scenarios.”
- Review current and expected earnings – seek to smooth large income spikes or gains in years expected to breach thresholds.
- Confirm how earnings will be reported by your superfund to align with ATO’s expectations.
Summary
Division 296 changes are a major new compliance dimension for superannuation in Australia, especially as high-balance holders now face extra tax on earnings starting 1 July 2026. Proper record-keeping, balanced investment decisions, and awareness of thresholds are essential to manage liabilities effectively.