What is Division 296 Tax?
Starting in the 2025-26 financial year, Australia introduced the Division 296 tax under the Better Targeted Super Concessions policy. This tax applies to super earnings related to the portion of an individual’s Total Superannuation Balance (TSB) that exceeds the large super balance threshold, currently $3 million. (ato.gov.au)
The tax rate is 15%, charged directly to the individual; it is separate from both regular income tax and the tax the super fund pays. (ato.gov.au)
Key Dates & Thresholds
- The threshold of $3 million applies and will be indexed in increments (
$150,000 increments) for “large” balances, and a higher threshold ($10 million) will apply for “very large” balances. (ato.gov.au) - Individuals will receive a Notice of Assessment for the tax, payable 84 days after issue. If they choose, within 60 days they can elect to withdraw from their super fund to satisfy the debt. If not, the Commissioner can issue a release authority to take the funds willingly. (ato.gov.au)
- If the Division 296 tax relates to a defined benefit interest (pre-regulations) that hasn’t converted to accumulation phase, payment is deferred until 21 days after the first benefit is paid from that interest. (ato.gov.au)
Sector-Specific Impacts: SMSFs & Defined Benefit Funds
- For Self-Managed Super Funds (SMSFs), new labels will be added to the 2026 SAR (Superannuation Annual Return) so that funds supply the data needed for the Division 296 calculation. (ato.gov.au)
- Defined benefit interests carry rules that alter timing: even if they exceed thresholds, taxes may not be immediately payable until benefits are accessed. (ato.gov.au)
Practical Strategies & Actionable Advice
Here’s what you can do if your super balance is above (or approaching) the $3 million threshold:
1. Timing your withdrawals or distributions
- Consider whether withdrawing from accumulation super in the debt-period is beneficial to avoid release authorities—and the associated loss of control over investments.
2. Assessing super contributions
- Be cautious about additional concessional contributions if you’re already near the threshold; earnings on excess portions will attract extra tax.
3. Review your defined benefit interests
- Understand the impact of extracting benefits; timing could defer tax or expose you to higher liabilities.
4. Monitor your SMSF reporting compliance
- Ensure your SMSF annual return (SAR) is set up with the correct new labels and accurate reporting of earnings and fund balances. Errors could lead to over tax liabilities. (ato.gov.au)
5. Tax planning avenues
- Explore transferring or restructuring super where legally permissible, or adjusting investment strategies to influence earnings (though risk-based and always with advice).
Why It Matters
- For those with high super balances, this is a material new cost– diverting significant portions of earnings above $3 million into higher taxed territory.
- The measure aims to target concessions better, reducing inequity between those with modest savings and ultra-wealthy members.
If your TSB crosses $3 million, or you're close, this is no time to wait. Speak with a super-specialised financial adviser to model your exposure and develop an optimized plan.