Understanding Division 296: High Super, Higher Tax
From 1 July 2026, Australia introduces Division 296 in the Income Tax Assessment Act 1997 targeting individuals with total superannuation balances (TSB) above $3 million. Earnings on amounts from $3 million to $10 million will face an additional 15% tax, meaning earnings are taxed at a nominal 30% (15% fund tax + 15% additional). For balances over $10 million, the extra tax rises to 25%, bringing the nominal rate to 40%. (aph.gov.au)
What Counts as Earnings and Balance
- The TSB includes all super interests (APRA funds, SMSFs, etc.) with values determined by regulations or, absent those, by their withdrawal benefit. (aph.gov.au)
- Taxable superannuation earnings (TSE) include realised earnings like interest, dividends (grossed-up for franking credits), rent, and realised capital gains. Unrealised gains are not taxed under this regime. (aph.gov.au)
- Transitional rules: for 2026-27, liability is based only on the balance at end of year (30 June 2027); contribution timing and withdrawals beforehand can affect future exposure. (aph.gov.au)
ACTIONS to Consider Before 1 July 2026
| Goal | Example Strategy | Considerations |
|---|---|---|
| Stay below first threshold | Plan withdrawals or pension payments to drop TSB below $3 million at 30 June 2027 — e.g. convert portion into retirement income stream, or shift certain assets out of super. | Beware of restrictions on access; must comply with age and condition rules; consider timing and market volatility. |
| Use cost-base reset election (SMSFs) | Small super funds can elect to reset asset cost bases to market value at 30 June 2026 to reduce future CGT when realising gains. | The election must be applied to all assets in the fund and is irrevocable; if market values fall, resetting might increase CGT on disposal. (aph.gov.au) |
| Shift growth into exempt or excluded funds | Certain interests (e.g. some defined-benefit or constitutionally protected funds, etc.) may be excluded from Division 296 or have different methods for attribution. | Such exclusions are narrow; seek specialist advice to verify applicability. (aph.gov.au) |
Longer-term Planning Beyond 2026-27
- The LISTO changes: from 1 July 2027, the upper income threshold rises to $45,000 (from $37,000), and maximum offset amount to $810. Low earners should ensure they meet eligible criteria. (aph.gov.au)
- Super funds and trustees will need solid record keeping to attribute earnings, calculate TSE, and report TSB accurately. SMSFs particularly will need actuarial or valuation certificates for defined benefit interests. (aph.gov.au)
- Consider investment mix inside super to balance high-growth assets (which may produce realised gains or income) versus more stable or income generating assets that may blend differently under TSE rules.
Real-world Example
Case: Jane has $5.5 million TSB on 30 June 2026, split between her SMSF and an APRA fund. Without action, starting 1 July 2026, only her portion over $3 million ($2.5 million) faces the extra tax on earnings. If she sells off $1 million worth of shares before 30 June 2027 and draws down some super income, she may be able to reduce TSB to ~$4.5 million, reducing earnings taxed at higher rate in that transition year.
Summary Checklist
- Review your total super balances across ALL funds by 30 June 2027.
- Consider withdrawals or pensions where possible before threshold breach.
- For SMSFs, decide on cost base reset strategy by fund return deadline.
- Monitor how earnings are attributed—look out for exposure draft regulations.
- Get professional tax & financial advice to avoid unintended consequences.
Key takeaway: Division 296 is law from 1 July 2026 and represents one of the most significant super changes in decades. But strategic planning ahead—especially in the transition year—can help reduce tax liability and preserve wealth.