What is the Division-296 Tax?
From 1 July 2026, Australia’s new Division 296 tax introduces higher superannuation earnings taxation for individuals whose total super balance (TSB) exceeds certain thresholds. (csc.gov.au)
Key thresholds and tax rates
- Large Super Balance Threshold (LSBT): $3 million for the 2026-27 financial year. Earnings above this are taxed at 30% (i.e. an extra 15% on top of the regular 15% super earnings tax). (csc.gov.au)
- Very Large Super Balance Threshold (VLSBT): $10 million. Earnings above this threshold are taxed at 40% (extra 25% above the base rate). (csc.gov.au)
- Both thresholds indexed to inflation in future years. (csc.gov.au)
How the tax will apply
- Only the earnings portion of the super balance that relates to the excess over the threshold is taxed at the higher rate—not the whole balance. (grantthornton.com.au)
- First assessments (Notice of Assessment) will be issued in latter half of 2027-28 based on earnings for 2026-27. (grantthornton.com.au)
- You can pay the Division 296 tax either yourself in cash, or elect to have funds released from your super to pay the liability within 60 days of the NOA. (grantthornton.com.au)
- Non-payment triggers issuance of a release authority enabling ATO to force the super fund to pay out amounts. (grantthornton.com.au)
Who’s impacted and who’s exempted
- Applies to individuals with TSB > $3 million. Self-managed super funds (SMSFs) with large balances will need to report earnings to ATO. (community.ato.gov.au)
- If you have a defined benefit interest and haven’t taken an end benefit, the liability can be deferred until benefit is paid. (grantthornton.com.au)
- Special exemptions include child recipients of a super income stream and those who receive structured settlement contributions for personal injury. Also, individuals who die before 30 June in the 2026-27 year will be exempt in the transition year. (grantthornton.com.au)
Planning strategies to reduce exposure
- Consider fund consolidation or distributions: If multiple super accounts push your aggregate TSB over $3 million, consolidating or withdrawing balances (where permitted) may reduce exposure.
- Timing of end-benefits: For those with defined benefit interests, delaying end-benefits (where practical) could time tax deferral. But seek financial and legal advice—may have trade-offs for retirement income and estate planning.
- Reassess investment allocations: Earnings over thresholds are taxed more heavily; lower-return (lower volatility) strategies for that portion might reduce tax cost.
- Leverage transitional planning: Since the first assessments occur late in 2027-28, early-action steps (fund selection, reporting) should be undertaken now.
Example
Sarah has a super balance of $4.5 million at the end of FY 2026-27, with earnings in that year of $200,000.
• LSBT is $3 million → her earnings relating to the $1.5 million above LSBT will be taxed at 30%.
• So, on that excess portion, instead of paying 15% she pays 30%—an additional tax of 15% on that portion.
• Earnings up to the $3 million threshold are taxed under standard super earnings rules.
Action checklist
- Check your estimated TSB at 30 June 2026 and 2027 to understand exposure.
- Speak to your super fund about reporting and whether they track labels required by ATO SAR (SMSF Annual Return). (grantthornton.com.au)
- Consult a qualified tax adviser for structuring options involving defined benefit interests and fund withdrawals.
With enacted legislation now in force, high super balances will need active monitoring and thoughtful plan adaptation.