Tax Planning
From SG Shortfalls to Division 296: Navigating Australia's Super Tax Landscape for High Net Worth Individuals
With new thresholds and reforms including Division 296 changes and Payday Super, high net worth superannuitants must reassess strategies to manage excess balances and tax exposure.
By NomadicTax Research Team • 5-8 min read • June 21, 2026
## Latest Reforms Affecting Large Super Balances
From **1 July 2026**, individuals with substantial super balances will face changes:
- **Division 296 tax** will apply to earnings linked to a Transfer Balance Account (**TBA**) that exceed the **large super balance threshold** (set at **$3 million** for the 2026-27 financial year). ([community.ato.gov.au](https://community.ato.gov.au/s/question/a0JMo000003zaJNMAY/p00415155?utm_source=openai))
- “Better targeting of super concessions” means some current exemptions and thresholds are being adjusted under legislation passed in recent budgets. ([community.ato.gov.au](https://community.ato.gov.au/s/question/a0JMo000003zaJNMAY/p00415155?utm_source=openai))
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## What Is Division 296 Tax?
- Division 296 was introduced to ensure that earnings on large super balances are taxed more equitably. If your super fund’s earnings on amounts exceeding the TSB threshold are taxed at a **top marginal rate** instead of the concessional rate. ([community.ato.gov.au](https://community.ato.gov.au/s/question/a0JMo000003zaJNMAY/p00415155?utm_source=openai))
- The threshold can catch those with high reversionary pensions or big balances in self-managed funds. ([community.ato.gov.au](https://community.ato.gov.au/s/question/a0JMo000003zaJNMAY/p00415155?utm_source=openai))
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## Strategies to Mitigate Exposure
| Strategy | What to Do | Key Point to Watch |
|---|---|---|
| **Review pension structure** | Re-evaluate reversionary pensions before death of original member; consider splitting or commuting pensions to reduce TBA exposure. | Timing matters—transfer and commutation processes often take place **on entitlement**, which could be the death date. ([community.ato.gov.au](https://community.ato.gov.au/s/question/a0JMo000003zaJNMAY/p00415155?utm_source=openai))|
| **Maximise tax-efficient investments** | Ensure fund returns are from assets that benefit from franking credits or exempt income to reduce taxable earnings. | Earnings exceeding $3M are taxed harshly; managing investment mix can help. |
| **Monitor growth carefully** | Avoid unexpected boom periods via rebalancing or transition to retirement pensions prior to hitting thresholds. | Growth in TBA-linked assets can trigger Division 296 liability unexpectedly. |
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## Case Example
- **Alice’s situation:** At 72, she has a reversionary pension receiving $250,000 p.a. She inherits two SMSFs and her total super balance hits $3.2 million.
- Under new rules (from 1 July 2026), the earnings on the $200,000 above $3 million will attract Division 296 tax.
- She could consider commuting part of one pension to reduce her TBA exposure or altering fund operation to split earnings sources. Professional advice essential.
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## Action Plan for High Net Worth Individuals
- **Check your super balance now** to estimate Division 296 exposure.
- **Plan for reversionary pensions**: Assess timing and consider alternatives.
- **Engage a financial and legal adviser** familiar with these reforms to model scenarios.
- **Stay compliant with STP reporting and new rules**, including QE, Payday Super changes, and others.
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High net worth individuals should act quickly—these reforms are already law for some and effective 1 July 2026 for others. Being reactive risks tax hit based on taxable earnings far exceeding the new thresholds.