Overview of Division 296
From 1 July 2026, new rules introduced in Division 296 affect individuals with Total Super Balances (TSB) exceeding the Large Super Balance Threshold (LSBT) of $3 million and Very Large Super Balance Threshold (VLSBT) of $10 million. Only the earnings linked to the portion of your super balance above these thresholds are taxed differently. (community.ato.gov.au)
How the Tax Applies
| Scenario | Super balance at year-end | Tax on earnings above threshold |
|---|---|---|
| Between $0 and $3m | Below or equal to LSBT | No change—normal earnings tax in super fund applies |
| Above $3m (up to $10m) | Earnings portion above LSBT | 15% tax on earnings above $3m threshold |
| Above $10m | Earnings portion above VLSBT | Always taxed 25% on earnings above $10m (15% + extra 10%) |
Note: TSB is checked both just before and at year-end; the greater determines threshold‐crossing. Earnings aren’t taxed until the fund reports them and ATO issues Notice of Assessment (expected in late 2027-28 for 2026-27 year). (community.ato.gov.au)
Planning Considerations for High Balance Super Members
-
Investment strategy: If part of your super is invested in high yield assets, earnings above the thresholds will be taxed more heavily. Consider asset types and expected returns.
-
Timing of contributions / withdrawals: While threshold is measured at year-end (and near start), managing contributions timing cannot avoid tax but might affect whether the earnings are caught.
-
Fund structure: For those with multiple funds, ensure total balances are consolidated or well understood so matching the threshold interacts across funds.
-
Reporting readiness: SMSF members and APRA regulated funds both report earnings over thresholds to ATO; you may need to provide information to trustees or fund managers. (community.ato.gov.au)
Practical Example
“Jane” has a TSB of $4 million at 30 June 2027. For that financial year:
- Earnings on first $3 million taxed as normal in fund (say 15%).
- Earnings on the $1 million above $3 million taxed at 15% under Division 296 (no extra if under $10m). If TSB had risen above $10 million, earnings above that point would be taxed at 25%.
Her fund reports earnings; she receives Notice of Assessment in late 2027-28. She cannot avoid tax on those earnings over thresholds, but knowing this can guide future investment allocations.
Actionable Steps
- Monitor your TSB regularly—even mid-year forecasts help with planning.
- Ask your super fund for projected earnings so you can estimate extra tax.
- If high risk of exceeding thresholds in future, diversify funds or adjust asset allocation with expect yield and tax rate in mind.
- Stay updated on threshold indexing—LSBT and VLSBT may increase in line with CPI or similar. (community.ato.gov.au)
Conclusion
Division 296 introduces a “new tax layer” for earnings linked to super balances above $3m and $10m, effective from 1 July 2026. While the rules don’t affect all super members, those with high balances should assess their investment mix, fund structure, and stay ahead of reporting responsibilities to manage after-tax returns effectively.