Overview of Division 296 tax reform
Division 296 introduces additional tax on earnings from superannuation for individuals whose Total Superannuation Balance (TSB) exceeds specific thresholds. It takes effect from 1 July 2026, with the first assessments expected in the 2027-28 financial year.(csc.gov.au) Key thresholds for 2026-27:
| TSB amount | Additional tax on earnings (above that threshold) |
|---|---|
| Over $3 million | earnings over this threshold taxed at an extra 15% (total applies to that portion) (csc.gov.au) |
| Over $10 million | earnings over this are taxed at additional 25% total (extra 15% plus additional 10%) (csc.gov.au) |
Note: the additional rates only apply to the portion of earnings linked to the excess. Earnings under the thresholds remain taxed at the standard 15% super rate.(csc.gov.au)
Who needs to understand this change?
- High net worth individuals with large super balances. If your TSB is near or above $3 million, the impact could be material.
- Super fund members, financial advisors, family office holders—anyone planning long-term super savings strategy.
Concrete calculations: how much extra tax might you pay?
Example:
A member, Alexa, ends the 2026-27 year with TSB of $5 million. Suppose her super fund returns 6% on average across all assets, so earnings are $300,000 for the year. The portion of her balance $2 million above the threshold ($5M − $3M) would attract extra tax:
- Earnings attributable to the first $3M taxed at 15% = $450,000 tax on $3M × 6% = $270,000 base earnings, paying $40,500.
- Earnings on the excess $2M (i.e. $120,000) taxed at extra 15%, so $18,000 additional tax—for that portion total rate 30%.
So she pays approximately $18,000 more in tax on those excess earnings.
If TSB went over $10M, the portion above $10M would attract a further 10% additional levy.
Planning strategies to reduce exposure (legally)
- Investment growth vs contributions: Extra contributions don’t directly affect earnings above $3M, but reorganising asset allocations may reduce volatile or high-earning portions. Lower yield stable assets may smooth exposure.
- Timing of drawdowns: If transitioning to drawdown or pension phase, earnings taxed differently—evaluate transition timing.
- Utilise concessional contribution caps: ensure contributions are structured prudently to avoid overshooting thresholds unnecessarily. If you are near the threshold, plan whether contributions this year are optimised.
- Seek diversified investment vehicle structures: within permitted super frameworks, some assets may produce different earnings profiles; balancing growth vs tax efficiency could matter.
Risks & considerations
- Legislation is new and guidance is still developing, particularly around how earnings are attributed above thresholds. Accuracy in reporting, especially concerning super fund valuation and attribution, will be essential.(csc.gov.au)
- Super fund fees and investment performance may eat into returns, so actual net impact could vary.
- Unions or political shifts could change parameters; stay engaged with policy updates.
Bottom line: If your super balance exceeds $3 million, Division 296 will introduce notable additional tax on future earnings. Early modelling and adjustment of investment strategy can cushion the effect before the tax kicks in.