What is Division 296 Tax?
Starting 1 July 2026, Australia will implement a new tax under Division 296 that imposes additional tax on certain super earnings for individuals whose total super balance (TSB) exceeds specific thresholds. (csc.gov.au)
- Large super balance threshold (LSBT): $3 million. If your balance exceeds this, earnings on the excess will be taxed at an additional 15%. (csc.gov.au)
- Very large super balance threshold (VLSBT): $10 million. Earnings above this higher threshold face an additional 10% (making a total surcharge of 40% on those earnings). (csc.gov.au)
Who’s Likely to Be Impacted?
This measure will affect a small portion of Australians:
- Those with super balances greater than $3 million (for the 2026-27 financial year) will pay extra tax on earnings above that threshold. (csc.gov.au)
- If the balance exceeds $10 million, earnings above $10 million will be taxed at an additional rate. (csc.gov.au)
Notably, the additional tax is only on earnings relating to the portion of the super balance exceeding thresholds—not on the entire super savings. (csc.gov.au)
What Counts as Earnings? And Other Key Details
To plan effectively, you need to know what’s counted and how it works:
- Earnings mean realised investment returns—interest, dividends, gains—that are assessable under income tax rules. (csc.gov.au)
- TSB is measured at financial year-end. If your balance exceeds the LSBT or VLSBT at 30 June, you may owe Division 296 tax. (csc.gov.au)
- Dividends of existing super balances affect the tax liability only when the earnings relate to the portion exceeding $3 million or $10 million, respectively. (csc.gov.au)
Planning Strategies to Manage or Mitigate Exposure
If you think you might be affected, here are actionable steps:
- Review contribution caps and limits earlier before exceeding $3 million. Consider gradual withdrawals (if allowed) or restructuring beneficiaries.
- Use tax-efficient investments inside super to reduce volatile or high-earning assets in the portion above thresholds.
- Consider timing of withdrawals—distribute super pieces over years to avoid a spike above threshold at year-end.
- Allocation of assets across super funds: spreading super or reviewing allocation to more tax-conservative portfolios once thresholds are crossed.
- Seek professional advice—this change interacts with transfer balance caps, pension phase rules, death benefits and investment choices.
Example
Jane has a super balance of $4 million at 30 June 2027. The portion above LSBT is $1 million. Earnings on that $1 million for the financial year, say $100,000 return, will be taxed at an extra 15%, so an additional $15,000 tax on those earnings. If she had $11 million (so $1 million above VLSBT), then earnings on that portion above $10 million face 40% surcharge, etc. Multiplying these by returns matters.
Things to Watch Out For
- Division 296 tax is enacted now—effective from 1 July 2026. (csc.gov.au)
- Might intersect with transfer balance account rules, defined benefit schemes, pension phase rules. Always check personal super structure. (csc.gov.au)
Actionable Next Steps
- Request latest statements to assess your TSB.
- Review asset allocations inside super for returns and risk.
- Plan for possible restructuring—consider estate planning, death benefits, splitting balances.
- Ensure you keep excellent records of super earnings; compliance expected.
If you proceed with early planning, you may ease the burden and avoid surprises when July 2026 rolls around. It's a big step in targeting tax concessions toward those with very large pools of retirement savings.