In 2023, the Government announced its intention to introduce a new tax targeting individuals with more than $3 million in superannuation. In December 2025, draft legislation for a significantly revised version of this tax was released.
This legislation has now passed both houses of Parliament and is awaiting Royal Assent to become law.
What is Division 296 tax?
Division 296 tax is a new tax that relates to superannuation but is levied on the individual member. The super fund itself will continue to be taxed as it has always been. The new tax will apply from the 2026/27 financial year onwards.
It will apply to individuals who have more than $3 million in super at either the start or the end of the financial year (that is, 1 July 2027 or 30 June 2028 for the 2028 financial year for example). There is a special rule for the first year of operation in 2026/27, where the $3 million threshold is measured only at
30 June 2027.
Importantly, the $3 million threshold applies
per member, not per fund. This is particularly relevant for SMSFs with multiple members.
This means that individuals who wish to withdraw assets from super (where a condition of release has been met) to bring their balance below $3 million will have until 30 June 2027 to do so. Professional advice is recommended before making decisions about withdrawing funds from super.
Individuals with a Division 296 tax liability will receive the assessment personally and will then have 84 days to either pay the tax or lodge an election to release the amount from their super fund. This applies even to individuals who cannot normally access their super due to age.
For those with a self-managed super fund, if a condition of release has not been met, it is crucial to lodge the election to release the funds from super. If this is not done and the SMSF instead pays the tax directly, the payment may be treated as early access to benefits and could result in additional tax or compliance issues.
How is Division 296 tax calculated?
There will be two additional layers of tax:
- One that applies to individuals with more than $3 million in super; and
- A further layer that applies to individuals with more than $10 million in super.
Both thresholds will increase over time in increments of $100,000 in line with inflation.
The tax is calculated as follows:
- 15% × the proportion of super over $3 million × superannuation earnings; plus
- 10% × the proportion of super over $10 million × superannuation earnings.
When the Government refers to applying tax rates of 30% or 40% to high super balances, it is combining these new taxes with the existing 15% tax already paid by the super fund. For example, a total tax rate of 40% comprises the 15% paid by the fund plus the additional 15% and 10% Division 296 taxes.
A key concept in this calculation is
“superannuation earnings”. Earlier versions of the proposed legislation included unrealised capital gains in this figure; however, this has since been removed.
The starting point for determining Division 296 earnings is to calculate earnings at the fund level. This includes the fund’s taxable investment income — that is, income the fund would normally pay tax on — such as interest, rent, dividends (including franking credits), and realised capital gains (after the one‑third CGT discount where applicable), less tax‑deductible expenses. Concessional contributions are excluded, even though they are taxed at 15% within the fund, because Division 296 tax is intended to apply to investment earnings rather than contributions.
If fund earnings are negative, there is no refund; the Division 296 tax liability is simply reduced to nil.
To ensure that realised capital gains accrued before the introduction of the new tax are not included in the earnings calculation, there will be an option to reset the cost base of fund assets to their market value as at 30 June 2026. This is an
opt‑in measure, and if elected, all assets must be reset. As a result, where some assets are in a loss position, this decision may not be straightforward.
Importantly, this cost base reset applies only for Division 296 earnings purposes and does not affect the cost base for other capital gains tax purposes.
The deadline to opt in to the cost base reset will be the
due date of the fund’s 2027 annual return. Accordingly, lodging the fund’s 2026 annual return on time will be crucial to avoid a 31 October due date for the 2027 return.
Once total fund earnings are determined, they are apportioned across all members to calculate each member’s
relevant fund earnings. This figure is then used in the Division 296 tax calculation. Where an individual has multiple super accounts, earnings from all accounts are aggregated.
The following example illustrates how the tax is calculated for an individual with $4 million in super and relevant earnings of $300,000:
($4m − $3m) ÷ $4m
= $1m ÷ $4m
= 25%
15% × 25% × $300,000
= $11,250
This results in an effective tax rate on total earnings of 3.75%.
What to do next?
For individuals with more than $3 million in super, Division 296 tax means that superannuation will generally be less favourably taxed than it has been in the past. This does not necessarily mean super is inferior to alternative structures, but rather that it is no longer as significantly advantaged.
If you have questions about how Division 296 tax may affect you, please contact Roberts + Morrow for more information.
Article written by Ryan Pinkerton, R+M SMSF Specialist Advisor
