What is Division 296 Tax?
From 1 July 2026, an additional tax called Division 296 applies to superannuation earnings corresponding to balances that exceed certain thresholds.(community.ato.gov.au) The new thresholds are:
- Large Super Balance Threshold (LSBT): $3 million(community.ato.gov.au)
- Very Large Super Balance Threshold (VLSBT): $10 million(community.ato.gov.au)
Earnings over the LSBT are taxed at 15%, and earnings over the VLSBT incur an additional 10%, making those excess earnings taxed at 25%. It’s important that only the earnings linked to the excess, not the entire super balance, are taxed.(community.ato.gov.au)
Who Will Be Affected?
This tax will affect:
- Individuals (APRA-regulated or SMSF) whose total super balance (TSB) at end of year exceeds $3 million.(community.ato.gov.au)
- If you hit $10 million, the portion above that gets the higher rate.(community.ato.gov.au)
- The tax starts accruing in financial year 2026-27, and assessments will be issued in the latter half of 2027-28, after funds have reported earnings.(community.ato.gov.au)
Practical Example
Alice has $3.5 million in total super savings at 30 June 2027. Her super fund earns returns of $200,000 during the year.
• Portion over LSBT = $3.5 million − $3.0 million = $500,000. • Earnings attributed to that excess: assume proportional — $200,000 × ($500,000 / $3,500,000) ≈ $28,571. • Tax on those earnings = 15% × $28,571 ≈ $4,286.
If Alice had a $12 million balance and similar proportional earnings, the portion over $10 million would carry the extra 10%.
Actionable Strategies to Consider
- Monitor total super balances—know all accounts, including SMSF, public funds, and those held overseas (if relevant).
- Manage earnings timing—seek to reduce taxable super-earnings exposure above thresholds by smoothing returns or rebalancing asset allocations.
- Consider pension accounts—some earnings in retirement pension phase have different tax treatments; check whether these apply to you.
- Review contribution strategies—excess concessional contributions, for example, may push you over the threshold; limit contributions accordingly.
- Use SMSF structuring or family trusts—if you have flexibility, possibly split balances among family or restructure to avoid individual over-threshold balances, while respecting legal requirements.
Implications for Funds and Compliance
- Funds (APRA and SMSFs) will need to report relevant earnings, determine eligibility for Division 296, and coordinate assessments.(community.ato.gov.au)
- Be aware of indexing—both $3 million and $10 million thresholds may be indexed to the CPI in future years.(community.ato.gov.au)
What to Do Now
- If your super balance is near $3 million, begin modelling. See how different investment returns might affect your exposure.
- Speak to a financial adviser or tax professional about structuring (pension phase, fund types, insurance costs).
- Check your super funds’ statements; consolidate where possible to simplify tracking.
- Keep documentation of earnings, balances at year-end, and any elections or elections regarding contribution caps.
Bottom line: Division 296 is a new tax for large super balances, effective 1 July 2026. With careful planning, you can manage your exposure and possibly reduce the liability without overhauling your entire super strategy.