Division 296 tax will change the way high balance self managed super fund members think about super from 1 July 2026. The measure adds an extra layer of tax on earnings that relate to the part of an individual’s total super balance that sits above three million dollars and a higher rate above ten million dollars. The tax is levied on individuals, not on the fund, yet it can generally be paid from the super account. This article explains the rules in plain language, shows how the numbers work, walks through scenario modelling for common SMSF situations, and sets out planning steps trustees can take before the first assessments arrive.
What is Division 296 tax
Division 296 entered the Income Tax Assessment Act 1997 through the Building a Stronger and Fairer Super System Act 2026. The supporting Imposition Act ensures the charge is constitutional because it is a separate tax on individuals. The policy goal is to curb the size of tax concessions enjoyed by very large super balances while leaving normal concessional treatment untouched for the vast majority of Australians.
Under the current rules super earnings in accumulation are taxed at fifteen per cent inside the fund and pension phase earnings are generally tax free subject to the transfer balance cap. From the start of the 2026–27 income year Division 296 adds an extra fifteen per cent on the slice of earnings that relate to any part of your total super balance above three million dollars. If your balance also exceeds ten million dollars the slice above that second threshold attracts a further ten per cent. The extra tax does not replace the existing fund level tax. Instead it sits on top and is assessed directly to the individual by the Australian Taxation Office.
The thresholds that trigger the new tax
For the first year the legislation sets two fixed figures. The large super balance threshold is three million dollars and the very large super balance threshold is ten million dollars. From 2027–28 both amounts will index with inflation but only in set increments. The three million dollar threshold rises in one hundred and fifty thousand dollar steps and the ten million dollar threshold rises in five hundred thousand dollar steps. Indexation only happens when the consumer price index movement is big enough to lift the figure to the next increment so the thresholds may remain static for more than one year.
Division 296 looks at your total super balance across every super interest you hold at two points in time. For the first year the test is only at 30 June 2027. From the second year onward the higher of the opening and closing total super balance each year is used. This approach makes it harder to drop below the threshold temporarily to avoid the tax.
Couples often ask whether they can combine their three million dollar thresholds. The answer is no. The test is always applied to each person. If one spouse has four million dollars and the other has two million dollars the higher balance spouse will face Division 296 while the other will not.
How Division 296 tax is calculated for SMSF members
SMSF trustees need to report each member’s share of the fund’s Division 296 earnings through new labels in the annual return starting with 2026–27. Division 296 earnings are generally the same as the fund’s taxable income plus exempt current pension income allocated to that member. Realised capital gains, dividends, rent and interest are all included. The final rules confirmed that unrealised gains are not counted which was a relief to many trustees.
Once every fund has reported the ATO aggregates a person’s relevant super earnings across all funds. The ATO then works out the taxable super earnings that relate to the portion of the total super balance above the threshold. The proportion formula is simple.
| Step | Formula | Comment |
|---|---|---|
| Proportion above three million | (TSB reference amount – 3,000,000) ÷ TSB reference amount | Rounded to two decimal places |
| Proportion above ten million | (TSB reference amount – 10,000,000) ÷ TSB reference amount | Only applies when TSB is above ten million |
The taxable super earnings for each slice are then multiplied by the relevant extra tax rate.
| Balance slice | Extra Division 296 rate | Effective total tax on earnings in accumulation |
|---|---|---|
| Up to three million | Nil | Fifteen per cent |
| Three to ten million | Fifteen per cent | Thirty per cent |
| Above ten million | Twenty five per cent | Forty per cent |
Because pension phase earnings are usually exempt inside the SMSF, members with pension interests can still face Division 296 on those earnings if their total super balance is high enough. The extra tax reduces but does not totally remove the advantage of pension phase for very large accounts.
Timeline for the rollout
The measure starts on 1 July 2026. SMSFs will first lodge Division 296 data as part of the 2026–27 annual return which is normally due in the first half of 2028 for funds that use a tax agent. APRA funds must provide information to the ATO inside ten business days when asked.
The ATO will issue Division 296 assessments after it receives data from all funds. That means the first notices should arrive in the second half of the 2027–28 financial year. Tax is due eighty four days after the notice date. You can pay from personal money or you can make an election within sixty days to release the amount from one or more super funds. If payment is not made the ATO can direct a fund to release an amount. Interest applies to late payments.
For the 2026–27 year if a person dies during the year Division 296 does not apply. This exemption recognises that death benefit processing can interact awkwardly with large balances.
Case studies showing the practical impact
Single trustee with four million dollars
Maria has a single member SMSF with a market value of four million dollars at 30 June 2027. The fund earns two hundred thousand dollars during 2026–27 and pays normal fifteen per cent tax of thirty thousand dollars. The ATO collects the earnings data from the SMSF return. Maria’s proportion above three million dollars is one quarter because the excess (one million) divided by the four million balance equals twenty five per cent. Her taxable super earnings for Division 296 purposes are therefore fifty thousand dollars. The extra tax is fifteen per cent of that figure which is seven thousand five hundred dollars. Maria can pay from personal funds or request her SMSF to release the amount.
Couple with seven million dollars split unevenly
Ben and Taylor have separate single member SMSFs. Ben has four million dollars and Taylor has three million dollars. Ben’s SMSF earns two hundred thousand dollars and Taylor’s earns one hundred and fifty thousand dollars. Ben’s proportion above three million dollars is twenty five per cent so his taxable super earnings are fifty thousand dollars. Taylor’s balance is right on the threshold so her proportion is zero and she owes no extra tax. They consider rebalancing their super via contribution splitting so each remains within the threshold.
Member approaching the threshold
Linh has two point nine million dollars in an industry fund on 30 June 2026. During 2026–27 she makes concessional and non-concessional contributions and her balance crosses three million dollars in March 2027. Her closing balance at 30 June 2027 is three point one million dollars. Even though she only exceeded the threshold late in the year her Division 296 proportion for the first year is just over three per cent. That small slice of her total earnings will attract extra tax. Linh realises timing contributions close to year end can unintentionally push her into the new regime.
Planning steps for SMSF trustees before 1 July 2026
SMSF trustees should start modelling future total super balances now because the size of current contributions and earnings in 2024–25 and 2025–26 will determine where they sit on 30 June 2027. Here are key areas to review.
Spousal balance equalisation remains an effective approach. Contribution splitting, spouse contributions and re-contribution strategies can help keep both partners under the three million dollar threshold. Care must be taken to respect annual caps and transfer balance cap limits but in many cases a couple can retain six million dollars across two SMSFs or two member accounts without triggering Division 296.
Investment location matters more than ever. Once a balance is above three million dollars the effective tax on fund earnings becomes thirty per cent up to ten million dollars. That rate is still below the top personal marginal rate but it is higher than company tax for passive income and it removes the zero tax benefit of pension phase. Holding some growth assets outside super in family trusts or companies can yield a better after tax result, especially when coupled with franking credits and capital gains discounts. Trustees should compare projections inside and outside super under different scenarios.
Starting a pension can still be worthwhile. Although Division 296 looks through to tax assets above three million dollars even in pension phase, earnings that relate to the portion below the threshold can still be fully tax free inside the fund. The extra tax applies only to the slice above the threshold. If a member is near but not over three million dollars, commencing a pension may lock in tax free status for most or all earnings and reduce the chance of crossing the line.
LRBA amounts are ignored when measuring total super balance for Division 296 yet the underlying asset value is included. This rule means trustees cannot dilute the measured balance through borrowing. However leverage can amplify returns which could push the actual balance above three million dollars faster than expected. Reviewing gearing levels before 2026 is sensible.
Finally, individuals with defined benefit interests should request updated benefit estimates. The regulations prescribe how defined benefit values convert into total super balances and those amounts can push a person over the threshold even if their SMSF balance alone is below it.
Exceptions and special cases
Division 296 does not apply to every super interest or every individual. People receiving super income streams as minors, individuals who made personal injury settlement contributions and certain constitutionally protected fund members are excepted. Earnings from foreign super funds are also excluded although their value may still count toward the total super balance for threshold purposes. If an individual dies in the first year the new tax does not apply for that year.
Practical checklist for trustees
Trustees can take the following action plan. First, calculate current total super balance across all funds and project the figure to 30 June 2027 based on likely earnings and contributions. Second, map each spouse’s balance if relevant because the test is individual. Third, review investment structures to decide which assets belong inside super and which belong elsewhere given the new effective rates. Fourth, assess contribution strategies including splitting before 30 June 2026. Fifth, ensure administration systems can capture Division 296 earnings and produce accurate valuations for unlisted assets. Sixth, schedule a meeting with a licensed adviser to tailor a response.
Frequently asked questions
When does Division 296 apply
The tax starts on 1 July 2026 and the first assessments will relate to the 2026–27 income year.
Does the tax apply to my SMSF or to me personally
The liability sits with the individual but you can elect to pay from any of your super funds including your SMSF.
How much can I have in super before the extra tax kicks in
You can have up to three million dollars in total super balance without Division 296. Couples each have their own threshold.
What is the rate on earnings between three and ten million
The extra rate is fifteen per cent which brings the effective tax on those earnings to thirty per cent in accumulation phase.
What if my balance tops ten million
The extra rate on the slice above ten million is twenty five per cent so the effective tax becomes forty per cent.
How is total super balance measured for this purpose
For 2026–27 the balance is measured at 30 June 2027. From 2027–28 onward the higher of the opening and closing balance each year is used.
Are borrowed amounts under an LRBA counted
The outstanding loan amount is disregarded when measuring total super balance for Division 296.
Can I avoid the tax by moving assets out of super
Moving or withdrawing assets can keep your balance below the threshold but you must weigh early access limitations, contribution caps and the benefit of long term compounding inside super.
Are unrealised gains taxed
The final legislation taxes realised earnings only. Unrealised gains are not included in Division 296 earnings.
Who is excluded
Child income stream recipients, certain structured settlement contributors and members of some constitutionally protected funds are not subject to Division 296.
Key takeaways for SMSF trustees
Division 296 narrows but does not close the tax advantage of super for high balances. Trustees with projected balances above three million dollars should model the after tax outcomes under both super and non-super scenarios, consider spouse equalisation, revisit their investment allocation, and ensure their SMSF can meet the new reporting obligations. Starting these conversations well before 1 July 2026 puts you in control when the new regime begins.
