Understanding Division 296 Tax
Starting 1 July 2026, individuals with a total super balance (TSB) above $3 million will face the Division 296 tax, an additional layer of taxes on super earnings above thresholds. If your TSB exceeds $10 million, an extra 10% tax applies on earnings above that very high threshold. (community.ato.gov.au)
This tax applies only to earnings associated with the portion of your TSB above those thresholds, not on the entire balance. Assessment will be done after your super fund reports earnings over the 2026-27 financial year. Notifications will be sent during 2027-28. (community.ato.gov.au)
Who Is Affected & Impacts
- Members of APRA-regulated super funds and SMSFs where the balance at end of the year is over $3 million.
- 83%+ of people will likely be unaffected, since high TSBs are rare outside elite professionals, long-career high earners or long-term rolled-over funds.
Effects include:
- Lower net returns in super due to additional 15% tax on earnings above $3M; 25% (15% + extra 10%) if above $10M.
- Reporting burden on super funds and members to calculate earnings proportionally. SMSFs must alert fund trustees and report relevant earnings. (community.ato.gov.au)
Tax Planning Strategies
- Balance splitting across spouses: Where one partner has a high super balance, consider strategies to distribute investments or contributions such that each balance stays under $3M.
- Concessional vs non-concessional contributions planning: Reducing further contributions if already near or above $3M may avoid pushing more earnings into taxed thresholds.
- Investment mix adjustments: Consider lower-earning or more tax-efficient investments within super for balances above thresholds.
- Withdrawal where possible: Though there's limited access to super funds before retirement, schemes such as transitioning to retirement may help optimize earnings and withdrawals.
Practical Example
Suppose Maya has a SMSF with TSB = AUD 4.5 million at 30 June 2027. Her fund’s earnings for the year are AUD 200,000.
- First AUD 3M of balance: earnings on this portion taxed normally (max 15%).
- Remaining AUD 1.5M: earnings tied to that portion (pro rata of total earnings) taxed at 15% under Division 296.
If TSB had been AUD 11 million, the portion above AUD 10 million would incur 2nd-tier rate (25%) on associated earnings. (community.ato.gov.au)
Compliance & Reporting Tips
- Ensure your super fund reports relevant earnings for the TSB over $3M to the ATO. SMSFs must track balances inclusive of all super accounts. (community.ato.gov.au)
- Keep accurate records of contributions, earnings, and account balances throughout year.
- Seek expert advice when approaching or exceeding thresholds to optimize tax, contributions, and withdrawals.
Conclusion
Division 296 tax introduces a new tax layer for high balance super accounts. While many will be unaffected, those with balances above $3 million should plan early with strategies to reduce exposure and ensure compliance. Understanding this rule is essential to avoid surprises during 2027-2028 assessments.