What is Division 296 Tax?
Division 296 introduces additional taxation on earnings from superannuation balances above certain thresholds. As of 1 July 2026 for the 2026-27 financial year:
- Large Super Balance Threshold (LSBT): $3 million
- Very Large Super Balance Threshold (VLSBT): $10 million (community.ato.gov.au)
If your Total Super Balance (TSB) exceeds $3 million, you’ll pay 15% tax on the proportion of super earnings above that threshold. If you exceed $10 million, an additional 10% “very large” tax applies to earnings above $10 million. (community.ato.gov.au)
How It Works
- The tax applies only to earnings (investment gains) attributed to the amounts above each threshold—not the full balance. So if you had $4 million, only earnings on the $1 million above $3 million are taxed at 15%.
- For super funds regulated by APRA and self-managed super funds (SMSFs), reporting obligations have been set. Funds must report your relevant super earnings tied to these thresholds to the ATO.(community.ato.gov.au)
Actionable Steps for Affected Individuals
- Check your Total Super Balance as of 30 June each year to see if you cross thresholds. Messaging is that both start and end balances may matter in future years, so maintaining clarity year-round is wise. (community.ato.gov.au)
- Consider restructuring how your super is invested; shifting investments to lower-return or more stable assets may reduce earnings taxed.
- For those nearing the LSBT or VLSBT, monitor contributions and withdrawals (where possible under law) to manage future tax exposure.
Example
Imagine Jane has a super balance of $3.5 million and earns 8% return ($280,000) in one year. Under the new Division 296:
- For the $3 million threshold: the $0.5 million excess earns part of her return—if we assume earnings evenly across all assets, the excess earnings taxed at 15% would be roughly $(280,000 * (0.5 / 3.5)) ≈ $40,000 earning above the LSBT; taxed at 15% = $6,000.
- If she had $11 million instead, earnings on the $1 million above $10 million would be taxed at an extra 10%.
Implications and Planning Tips
- Invest differently: funds may offer segmentation or use different investment options to limit high volatility in the part above thresholds.
- Timing of withdrawals or contributions where permissible might be relevant around 30 June cut-offs, especially for high net worth individuals. Ensure you involve super or tax advisers familiar with restrictions.
- Reporting and record-keeping: maintaining accurate records of investment earnings, balance valuations, and transactions. You’ll receive notices and assessments in latter half of 2027-28 after the 2026-27 year concludes. (community.ato.gov.au)
Final Thoughts
For many members with substantial super balances, this measure introduces a new recurring tax burden. Yet, it also provides clarity and predictability. Proactive investors and trustees can reduce unexpected liability with thoughtful strategy, timely record-keeping, and knowing what’s coming.
This is best placed under Tax Planning, with Medium-high impact given it affects a narrowing but important group.