What is Division 296?
Starting the 2025-26 financial year (effectively 1 July 2025 for APRA and self-managed super funds), Division 296 introduces an additional tax on super earnings for individuals whose total super balance (TSB) exceeds the large super balance threshold (LSBT). (ato.gov.au)
- LSBT is set at $3 million for 2026-27. If your TSB is above this, you’ll pay 15% on the portion of earnings attributable to the balance above $3 million. (community.ato.gov.au)
- If your TSB exceeds a very large super balance threshold (VLSBT) of $10 million, an extra 10% is imposed on earnings above that VLSBT amount. (community.ato.gov.au)
Who Must Report and When the Tax Will Be Assessed
- Super funds (both APRA-regulated funds and SMSFs) will report relevant super earnings to the ATO. SMSFs will have new labels added to the SMSF Annual Return for reporting. (ato.gov.au)
- Notices of Assessment (NOA) for Division 296 tax for the 2026-27 financial year will be issued in the latter half of 2027-28, once relevant earnings are reported. (community.ato.gov.au)
- The liability will be payable 84 days after the date on the NOA. There’s an option to elect for withdrawal from a super fund to pay the liability. If unpaid, a release authority can be used by the ATO to access funds. (softwaredevelopers.ato.gov.au)
Impact on Defined Benefit Interests and Exemptions
- For earnings from a defined benefit interest in accumulation phase, where no end-benefit has been taken, the liability is deferred until 21 days after first benefit payment. (softwaredevelopers.ato.gov.au)
- Exemptions include: child recipients of super income streams during the year, and structured settlement contributions from personal injury payments. Also, for the transition year (2026-27), if an individual dies before 30 June 2027, they may be exempt. (softwaredevelopers.ato.gov.au)
Example Scenarios
- Sophia has a TSB of $4 million at 30 June 2027. Earnings on her super for that year total $200,000. Under Division 296, only the portion of earnings attributable to $1 million over the $3 million LSBT is taxed at 15%. So she pays 15% × (earnings allocated to that excess), not 15% on her full earnings.
- Jordan has $12 million. Above $10 million, extra 10% applies on earnings above $10M; the portion between $3-10M gets taxed at 15%.
Planning Strategies
- Track your contributions carefully across multiple super funds to estimate whether you’ll exceed LSBT.
- Time earnings and withdrawals: For example, drawing down defined benefit interests earlier could trigger assessment sooner, while deferring may help.
- Consider structuring contributions in years when earnings are lower.
- Know that the choice to use super funds to release money to pay tax can preserve non-cash assets.
Summary: If you have a high super balance, Division 296 means a new layer of tax on earnings over $3M (and extra over $10M). But it applies specifically and with technical rules, plus important exemptions and deferral options. Planning ahead can make a real difference.