Introduction
Effective 1 July 2026, Australia’s Division 296 tax imposes additional tax on super earnings for individuals whose Total Super Balance (TSB) exceeds $3 million at the end of a financial year. Earnings above $3 million are taxed at an extra 15%, and where TSB exceeds $10 million, an additional 10% tax applies to the portion above that higher threshold. (community.ato.gov.au)
If you're approaching or already have a super balance in this range, or advising someone who is, now is the time to review strategies. Failure to plan could mean paying significantly more tax on earnings. This article covers key approaches, real examples, and actionable steps you can take immediately.
Understanding Division 296 Tax Basics
- Large Super Balance Threshold (LSBT): $3 million for 2026-27 financial year.
- Very Large Super Balance Threshold (VLSBT): $10 million for same period.
- Earnings above LSBT taxed at 15%. Earnings above VLSBT taxed at additional 10% beyond VLSBT portion. (community.ato.gov.au)
- Importantly, it's not the whole super balance taxed—only the portion over thresholds.
Strategies to Mitigate Division 296 Liability
| Strategy | Action | Result |
|---|---|---|
| Balance timing | Delay contributions or roll-overs until after the balance drops below $3 million, if possible. E.g., timing of large transfers or payouts. | Reduces earnings subject to Division 296. |
| Split super balances | Move some super interests to funds or structures exempted or where funds are split across spouses. | Each individual may stay under threshold. |
| Reduce earnings exposure | Shift investments toward lower growth assets or assets with tax-advantageous earnings treatment. | Slower growth but fewer earnings taxed extra. |
| Defer realisation of earnings | Defer income-generating events until after balance drops or post threshold changes. | Smooths out earnings spikes. |
Illustrative Example
Sarah has a TSB of $3.5 million. Her fund earned $200,000 in relevant earnings in the 2026-27 year. Under Division 296:
- Earnings above $3 million ($500,000 portion) are taxed 15% → her additional tax = $200,000 × (500,000/3,500,000) × 15% ≈ $4,286 approximately. Only the earnings portion corresponding to the threshold excess is taxed extra. If her balance stays under $3 million in future years, no Division 296 applies.
What You Should Do Now
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Estimate your TSB as at 30 June 2026 and likely 30 June of subsequent years. Know if you’re over thresholds. The TSB will include withdrawal values of super interests (not using transfer balance account values). (softwaredevelopers.ato.gov.au)
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Talk to your super fund and financial adviser about strategies for balancing growth with minimising exposure.
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Plan contributions carefully. Review if making new contributions could push you past a threshold.
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Review investment mix – perhaps shift toward lower-return or tax-friendly asset classes within super.
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Keep records of fund earnings, valuations, and reporting from the fund—these will be required for the ATO to issue assessments. Notice of Assessments for 2026-27 are expected late 2027-28. (community.ato.gov.au)
Risks and Considerations
- Switching to very low-growth investments might reduce retirement wealth.
- Penalties or extra tax if underestimating your balance or misreporting earnings.
- Future policy changes may adjust thresholds or rates.
Conclusion
If your TSB is close to or above $3 million, Division 296 will meaningfully affect your super earnings from 1 July 2026 onward. The good news: only earnings above thresholds are taxed more, and with smart timing, investment mix, and balance management, you can significantly reduce the extra tax burden. Acting now will give you options before the measure takes full effect.