What Is Division 296?
Division 296 arises from the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026, which was passed by both houses of Parliament in March 2026 and takes effect from 1 July 2026. It introduces an additional tax on realised super investment earnings for individuals with Total Superannuation Balances (TSB) exceeding $3 million. (grantthornton.com.au)
Who Is Affected & How It Operates
- If your super balance is above $3 million as at end of a relevant income year, any realised earnings attributed to your super account will be taxed under Division 296. Values above thresholds are taxed at additional rates (varying tiers) based on proportion of earnings. (superannuation.asn.au)
- Crucially, unrealised capital gains are excluded, per the final version of legislation—only earnings realised after the threshold date enter the calculation. (sw-au.com)
- Super funds will need to report realised earnings for members whose TSB exceeds the $3 million threshold. How those earnings are measured depends on the type of fund (SMSF vs large public/private funds). (superannuation.asn.au)
Practical Examples
- Suppose Jane has a TSB of $4M. At end of income year, her fund realizes investment earnings of $200,000. The portion of earnings attributable to her balance above $3M may be taxed above normal rates under Div. 296.
- Mark has $2.5M, below threshold—no added tax. But if investment earnings push some assets into realized gains next year and he crosses $3M, the newly realized earnings over that limit become relevant.
Strategies to Consider Before or After 1 July 2026
- Manage Realisations: Delay realising gains or income in years where your balance crosses $3M, if possible.
- Use Let-it-ride Tactics: For SMSFs or account-based income, monitor investment turnover and consider timing around when earnings are realized.
- Review Fund Structure: If you have multiple super interests (e.g., SMSF plus account in public fund), check combined TSB; perhaps shift investments depending on tax efficiency.
- Consider tax advice: Specialists can help estimate impact, especially for those close to threshold—what earnings are likely, which funds may aggregate balances.
What You Should Track & Know
- Your Total Superannuation Balance each year—ATO collects these, so ensure statement matches your records.
- The funds’ realised earnings vs income reported annually; whether your fund provides the necessary detail.
- How various asset allocation (growth vs income vs realized gains) influences your earnings in super; low-turnover assets may produce fewer realized earnings.
- Impact of fees and investment costs reducing net earnings, hence affecting taxable earnings base.
Broader Considerations
Division 296 aims to raise revenue from those with high super balances, thereby ensuring fairer retirement contributions tax burden. It also increases administrative reporting obligations both for individuals and super funds.
If your super balance is approaching or exceeds $3M, it’s time for a detailed tax and portfolio review. Proactive planning between now and 30 June 2026 (first relevant year) may help reduce unexpected tax bills.