Understanding Division 296: What Has Changed
Beginning 1 July 2026, Division 296 under the ATO’s new Better Targeted Superannuation Concessions regime generates additional tax on super earnings above specified thresholds. For the 2026-27 financial year, the Large Super Balance Threshold (LSBT) is $3 million, and the Very Large Super Balance Threshold (VLSBT) is $10 million. Earnings above the LSBT are taxed at 15%, and an extra 10% applies to those above VLSBT. The tax only applies to the portion of earnings linked to the excess balance. (community.ato.gov.au)
Who Is Likely Affected
- Individuals with accumulated super balances over $3 million across all super funds (APRA, SMSF etc.) by year-end.
- Those who have growth-oriented investments in super, as earnings will be taxed on the margin above the threshold.
- High net-worth individuals using super as a primary vehicle for retirement savings and wealth accumulation.
Planning & Mitigation Strategies
| Strategy | Key Consideration | Potential Benefit |
|---|---|---|
| Evaluate investment mix inside super | Balancing growth vs income assets; earnings taxed above LSBT are in scope. Partially shifting to lower-earning assets may reduce exposure. | Lower taxable earnings and smoother ramp-up beyond thresholds. |
| Rollovers and retirement income streams | Some retirement products (like capped defined benefit streams) may impact transfer balance caps and trigger different tax outcomes. | Structuring to minimise Phase-outs and tax leakage. |
| Draw down or draw forward versus accumulation | Taking out balances or using pension phase earlier might reduce exposure for high earners. | Potential to stay below threshold or limit earnings above it. |
| Indexation awareness | LSBT & VLSBT may rise with CPI in future years. Plan horizons to anticipate thresholds. | Timing contributions or transfers before thresholds are indexed might reduce liability. |
Example Scenario
- Alice has a TSB of $3.5 million at 30 June 2027. Her super fund’s earnings for the year are $200,000.
- Only the portion of earnings proportional to excess balance ($3.5m - $3m = $0.5m) will be taxed at 15% under Division 296.
- If Alice crosses the $10m VLSBT, any earnings above that will also attract additional 10% rate.
Actions You Should Take Before Year-End
- Obtain accurate TSB projections now. Know where you are relative to LSBT/VLSBT thresholds.
- Review expected super earnings for 2026-27; forecast growth in each asset.
- Consult with your SMSF trustee or super fund about reporting practices for earnings.
- Consider timing lump-sum contributions or transfers to reduce exposure in high balance years.
Compliance & Reporting
- Super funds must report “relevant super earnings” for members whose TSB exceeds LSBT. ATO issues assessments in the latter half of 2027-28. (community.ato.gov.au)
- Ensure clear records of super fund balances, asset allocations and earnings attribution to comply with ATO’s thresholds and tax assessments.
Conclusion: For high-balance super members, Division 296 introduces a non-trivial tax on earnings above certain balance thresholds. Early planning and careful investment strategies can help minimise extra tax, while staying compliant with new reporting and timing requirements.