What Is Division 296 Tax?
Starting from 1 July 2026, if your Total Super Balance (TSB) at the end of the financial year exceeds the Large Super Balance Threshold (LSBT) of $3 million, an extra 15% tax will apply to the portion of super earnings that are attributable to amounts over that threshold. If you exceed the Very Large Super Balance Threshold (VLSBT) of $10 million, an additional 10% tax applies on the earnings for amounts above $10 million. (community.ato.gov.au)
This tax does not apply to your entire balance—only the earnings portion that relates to amounts above the threshold. Super funds (APRA regulated or SMSFs) must report your relevant earnings to the ATO. (community.ato.gov.au)
Who This Hits
- If you hold super balances in multiple funds, combine them when evaluating whether the LSBT or VLSBT applies. (community.ato.gov.au)
- Savings over $3 million with strong investment returns likely face the tax.
- Funds that just exceed the $10 million mark face the higher rate for portions above that threshold.
Timing and Assessments
- Assessment notices for the 2026-27 financial year’s Division 296 tax will be issued in the latter half of the 2027-28 financial year once funds have reported relevant earnings. (community.ato.gov.au)
- Both LSBT and VLSBT may be indexed in future years based on the Consumer Price Index (CPI). Also, the ATO will consider balance just before the start of the year vs. end-of-year and use the greater of the two to determine threshold exceedance. (community.ato.gov.au)
Managing Exposure: Planner Tips
- Review your super balance to see if you’re close to LSBT or VLSBT. If so, modelling investment return scenarios can estimate potential tax liability.
- Consider using funds with different earnings components: sometimes splitting investments or managing earnings outside super may help.
- Review investment return rates vs. tax cost: it may make sense to adjust asset allocations for those earnings above thresholds.
- Rebalance timing: if you expect your balance to temporarily exceed a threshold, planning contributions may avoid higher tax in certain years.
Practical Example
Jane has a TSB of $4 million at the financial year’s end.
Earnings on amounts between $3 million and $4 million are taxed at 15%.
Had she had $11 million, earnings on amounts over $10 million (i.e. $1M portion) would also incur an extra 10% on top of the 15% applied to the $3–10 million bracket.
Broader Implications
- SMSF trustees need to ensure accurate reporting of “relevant super earnings.”
- Investment strategies may shift, especially for high net worth individuals nearing thresholds.
- This policy reflects the government targeting larger, very well-funded super balances with additional taxation burdens.
Summary: If you expect your super balance to exceed $3 million, Division 296 adds tax bites on earnings over thresholds. Understanding the numbers and timing is critical to avoid surprises.