Overview of the Division 296 Reforms
From 1 July 2026, a new additional tax under Division 296 comes into effect targeting realised earnings on superannuation balances over certain thresholds. (csc.gov.au)
Key Thresholds & Rates
| Total Super Balance (TSB) | Excess Over Threshold | Rate on Excess Earnings* |
|---|---|---|
| Over $3 million up to $10 million | Amount above $3m and ≤ $10m | 30% (i.e. +15% extra tax) (csc.gov.au) |
| Above $10 million | Amount above $10m | 40% (i.e. +25% extra tax) (csc.gov.au) |
*This is the additional tax on earnings above those thresholds—not on the entire super balance.
Other Related Changes from the 2026 Federal Budget
- The Lower Income Super Tax Offset (LISTO) income threshold will rise from $37,000 to $45,000, effective 1 July 2027, with a max payment bumped to $810. This aligns with the top of the 2nd tax bracket. (csc.gov.au)
- Superannuation contributions caps will increase from $30,000 → $32,500 (concessional) and $120,000 → $130,000 (non-concessional) from 1 July 2026. The general bring-forward rule limit for the non-concessional cap also moves from $360,000 → $390,000. The transfer balance cap will increase from $2 million → $2.1 million. (csc.gov.au)
Implications & Strategy Considerations
- Only a small segment of Australia’s super investors have TSB above $3m—this new tax mostly targets the very wealthy. But for those affected, it could significantly increase tax on investment earnings.
- Since thresholds are indexed, balances could creep into affected zones over time.
What You Should Do Before 1 July 2026
- Review your super balance: If close to $3m, consider strategies like spreading balances across fund types (subject to rules).
- Consider realising gains or losses prior to the reform, especially for assets inside super showing large unrealised gains, if that aligns with your broader investment plan.
- Check LISTO eligibility: If your income is below $45,000, ensure you’ll benefit from the higher threshold and increased offset.
Example
Mary has a total super balance of $5m for 2026–27. If her fund earned $200,000 in realised earnings, only the portion of earnings on $2m (excess above $3m) would attract 30% tax under Division 296; the rest taxed as per usual super earnings rules.
Practical Tips & Warnings
- Be cautious about liquidity: to cover the extra tax, you may need more cash to wash earnings taxed at higher rates.
- Don’t attempt risky “super splitting” or overly aggressive strategies—ATO may scrutinize arrangements aimed at evading the rules.
- Consult a financial adviser, especially if you have defined benefit components or hold large fund balances close to thresholds.
{Super planning isn’t just for the future—it’s immediately relevant before July’s fiscal year.}