Division 296 Tax: What the $3 Million Super Balance Changes Mean for You
- Jaxon King
- Oct 14
- 4 min read
Superannuation tax reform is coming and for Australians with large super balances, the new Division 296 tax could mean paying more tax on future earnings.
Long contested since first being introduced, changes were announced to the proposed Division 296 tax for individual Superannuation balances over $3 million. If your total super balance exceeds $3 million, understanding how these changes work and when they apply will be essential to planning ahead.
What Is the Division 296 Tax?
Division 296 is the Federal Government’s proposed additional tax on individual balances over $3 million. It is now proposed to be a two-tier tax system for high superannuation balances, designed to ensure what it calls a “fairer” tax treatment of large accounts.
Under the proposed legislation, from 1 July 2026, individuals with total super balances (TSB) above $3 million will face higher tax rates on their super earnings.
Key Superannuation Tax Changes at a Glance
Here’s a quick summary of the main Division 296 superannuation changes:
Start date: 1 July 2026 (previously proposed for 2025).
New tax tiers:
Additional 15% on earnings above balances between $3 million and $10 million (referred to as 30% total)
25% on earnings attributable to balances above $10 million (referred to as 40% total)
Existing fund tax remains: The fund’s 15% concessional tax rate will still apply to taxable income below the threshold.
Threshold indexation: Both the $3 million and $10 million thresholds will be indexed to CPI, helping reduce bracket creep over time. This is a crucial part as it will prevent bracket creep and was one of the most contentious parts of the original proposal.
Calculation method: The tax will now be based on realised earnings, not paper gains. Another very contentious part which would have significantly affected those with large assets in their SMSFs – i.e famers with farm land, electricians with warehouses etc.
These changes mean that the tax will only apply to the realised gains in a fund, not the unrealised gains as proposed previously.
What Does “Realised Earnings” Mean?
One of the most important refinements in the updated proposal is the move to a realised earnings approach.
Previously, the government had planned to tax unrealised gains. This meant you could have owed tax on paper increases in value, even if your fund hadn’t sold any assets – for example, if you own CBA shares and the value went up but you didn’t sell any, you would have had to pay the tax on the gain any way. This created significant concern, particularly among SMSF trustees holding property or other illiquid investments.
Under the revised approach:
Tax will be calculated based on your fund’s actual taxable income (e.g. interest, dividends, realised capital gains).
Adjustments will be made for contributions and pension payments.
The ATO will work with super funds to determine each member’s share of realised earnings on a “fair and reasonable” basis.
This change aligns Division 296 more closely with existing tax concepts, reducing complexity and potential liquidity issues for affected members.
Who Will Be Affected by the $3 Million Super Balance Threshold?
While the vast majority of Australians will not be impacted, high-net-worth individuals and SMSF members are most likely to be affected. It is estimated that there are approximately 90,000 funds with more than $3 million and 10,000 funds with balances above $10 million.
If your total super balance is approaching $3 million, now is the time to start reviewing your retirement and estate planning strategy to understand potential future tax implications.
How Will the Division 296 Tax Be Applied?
Here’s how the process is expected to work:
Each year, the ATO will calculate a member’s total super balance (TSB) as at 30 June.
If your TSB exceeds $3 million, the ATO will request your fund’s realised earnings data.
Based on this, the ATO will determine your Division 296 tax liability.
Impacted members can then choose to pay the tax personally or release funds from their super to cover it.
The first assessments are expected in the 2027–28 financial year.
What’s Still to Be Finalised?
Several details are still under consideration, including:
How the rules will apply to defined benefit members.
Whether exemptions for certain judicial and constitutional office holders will be extended.
Final legislative details, expected in 2026 after further consultation with industry.
What Should You Do Next?
While no immediate action is required, individuals with high super balances (especially SMSF trustees) should start planning now. The new tax could influence decisions around investment strategy, pension drawdowns and contribution timing over the next few years.
As with all superannuation tax reforms, the key is to ensure your structure remains efficient and aligned with your long-term goals.
Important: This article provides general information only and does not constitute personal financial or tax advice. You should seek professional advice tailored to your circumstances before making any decisions.
Final Thoughts
The Division 296 tax represents one of the most significant superannuation tax reforms in years. With higher taxes on balances above $3 million, understanding how the realised earnings method works and preparing early can help reduce surprises when the rules take effect in 2026.
If you’d like to explore strategies for managing large super balances or improving after-tax retirement outcomes, our team can help.
At Scion Private Wealth we work with many Australians planning their retirement and looking for ways to optimise their superannuation and retirement savings.
Book a consultation with our retirement planning team today and discover how we can help you to achieve a comfortable retirement.
We can help you optimise super contributions, build tax-effective investment strategies and make the most of your retirement years. Contact us now and take control of your financial future.
