Division 296: The New Tax on High Super Balances Explained

From 1 July 2026, individuals with high superannuation balances may pay additional tax on part of their superannuation earnings under new Division 296 rules.

The final legislation introducing Division 296 differs from earlier proposals. In particular

• the tax does not apply to unrealised gains;
• the balance thresholds are indexed over time; and
• SMSFs have a one‑off option to reset the cost base of certain assets to market value as at 30 June 2026.

Although Division 296 tax is assessed to the individual (not the super fund), it has practical implications for SMSFs, especially in relation to asset valuation, liquidity and reporting. The first assessments will be based on balances at 30 June 2027, making it important to understand how the rules apply and what transitional options are available.

This article provides an overview of the final Division 296 and highlights key points that both individuals and SMSF trustees should be aware of in respect of the new reforms

What is Division 296?

As a part of the Amendment Act,[1] the reforms will introduce a new Division 296 titled ‘better targeted superannuation concessions’ (Division 296) into one of the key pieces of Australian tax legislation.[2]

Division 296 reduces the tax concessions available on superannuation earnings for individuals with superannuation balances in excess of $3 million (Large Balance Holders) and, further reduces such concessions for those with balances in excess of $10 million (Very Large Balance Holders).

From 1 July 2026:

• Large Balance Holders will be subject to an additional 15% tax on the portion of their superannuation earnings that relate to the part of their super balance above $3 million; and
• Very Large Balance Holders will be subject to an additional 10% tax (on top of the 15%) on the portion of their superannuation earnings that relate to the part of their super balance above $10 million.

How is Division 296 different from earlier proposals?

An additional tax on high super balances has been proposed as far back as 2023, and draft Division 296 legislation was released earlier last year. However, the version of the legislation that has now been passed includes some important changes.

Earlier drafts included unrealised gains in the calculation of ‘earnings’ that are subject to the additional tax, but the Amendment Act now only considers realised earnings which is more consistent with other income tax calculations.

Previous drafts also did not index the balance thresholds and only contemplated one additional tax for Large Balance Holders. In contrast, the new Division 296 indexes the thresholds, meaning that the $3 million threshold will increase over time. The Amendment Act also introduces the further 10% tax on Very Large Balance Holders, in addition to the further 15% tax that applies to Large Balance Holders.

How will the tax be calculated?

The 15% tax will be applied to the proportion of superannuation earnings that relate to the amount of the Large Balance Holder’s superannuation balance above $3 million.

If you are a Large Balance Holder, as at 1 July 2026 the calculation works as follows:

• Calculate the proportion (as a percentage) of your super balance above $3 million: (your total super balance – 3,000,000) ÷ your total super balance (Y%)
• Apply that percentage to your superannuation earnings for the year: your superannuation earnings for the year x Y%

This will produce the amount of earnings (as a dollar figure) that will be subject to the additional 15% tax.

The additional 10% applied to earnings in excess of $10 million is calculated using a separate formula.

If your superannuation account is a defined benefits account, the Division 296 tax will apply differently. Certain amounts of eligible defined benefits accounts will be deferred to a ‘Division 296 debt account’, and the tax will become payable when the defined benefits are paid out.

Additionally, certain superannuation interests are expressly excluded from Division 296 calculations, including foreign superannuation funds, certain judicial pension schemes and some constitutionally protected funds.

Timing of Balance Assessment

Whether an individual is treated as a Large Balance Holder is determined by whether their superannuation balance exceeds the threshold, either at the start or the end of the relevant financial year; whichever balance is higher is used for this assessment. This means that, if an individual meets the threshold at the start of the financial year, but then makes significant withdrawals resulting in a balance below $3 million at the end of the financial year, that individual could still be subject to paying the additional Division 296 tax.

There is an important exception. For the 2026-27 income year only, the balance of superannuation accounts will only be considered as at 30 June 2027, meaning that if your account is in excess of $3 million on 1 July 2026 but your balance decreases below $3 million by 30 June 2027, you will not be subject to the additional tax payable.

When will it take effect?

Division 296 will take effect from 1 July 2026. Large Balance Holders will therefore first be subject to the additional tax in the 2026-27 income year.

Also note that, upon death, an individual’s total superannuation balance is taken to be $0, so Division 296 will not apply from that point forward.

What should advisers and taxpayers do to prepare for Division 296?

Although Division 296 is assessed to the individual, rather than the superannuation fund, advisers and SMSF trustees should still ensure that they are aware of, prepare for, the incoming changes.

Before 1 July, Large Balance Holders, Very Large Balance Holders and their advisers should consider:

• obtaining updated valuations for all investments to ensure that the superannuation account balance is accurately reflected at 1 July;
• considering the CGT Cost Base Reset, which allows certain assets to be reset to their market value as at 30 June 2026, so that only gains after that date are taxed under Division 296;
• reviewing retirement and wealth strategies to account for these new tax thresholds; and
• ensuring records and data relating to superannuation interests are complete and well maintained.

What are the Cleardocs products available?

Cleardocs offer the following relevant products:

• Superannuation Fund (SMSF) Trust
• SMSF deed update
• SMSF Investment Strategy

Please read the Product Benefits, Product Information and Frequently Asked Legal Questions carefully and consider if it is appropriate in your circumstances before purchasing any Cleardocs product.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

• Advice Matters: ASIC Warns of Poor SMSF Practices
• Federal Super Tax Backflip: Understanding the revised superannuation reforms
• Proposed Superannuation Tax Increase: Extra 15% tax, where Funds have $3 Millions
• A Better Way to Merge: Government to address unintended impacts from combining superannuation funds
• CGT on transferring assets between SMSFs, or from one SMSF to another super fund?

[1]Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 (Cth) (Amendment Act).

[2] Income Tax Assessment Act 1997 (Cth).