Last week, the Federal Government passed legislation introducing a new tax on very large superannuation balances. Division 296 tax or the $3 Million Super Tax as it is known by the media, will apply from 1 July 2026 and targets individuals whose total super balance exceeds $3 million.
Division 296 is an additional personal tax designed to reduce the tax concessions available to people with very large super balances.
Key points and common misconceptions
- The tax applies when a person’s total super balance across all super funds exceeds $3 million.
- It is not a cap on super balances. You can still hold more than $3 million in super.
- The tax does not apply to the total super balance, but to a portion of the earnings generated by the super fund’s investments.
- Although calculated using super fund data, the tax is assessed to the individual, not the super fund. Individuals will generally have the option to pay the tax personally or release the amount from their super.
When does it start?
The rules begin on 1 July 2026, with the first assessment based on balances at 30 June 2027.
For the first year (2026–27), the tax will only apply if your total super balance exceeds $3 million at 30 June 2027.
From 2027–28 onwards, the calculation will use the higher of your total super balance at the start or end of the financial year.
If you are considering reducing your super balance (for example, by withdrawing funds after meeting a condition of release), you generally have until 30 June 2027 to do so. This decision should always be considered carefully with professional advice.
How the tax works
Division 296 tax is calculated using a formula which looks at:
- your total super balance,
- the proportion of that balance above $3 million and $10 million, and
- your share of the super fund’s investment earnings.
The tax rates are:
- 15% additional tax on earnings attributable to the portion of super above $3 million, and
- an additional 10% tax on earnings attributable to the portion above $10 million.
It is important to note that these are additional taxes on top of the 15% superannuation tax. This means the effective tax rate on earnings could be:
- 30% on earnings linked to balances between $3 million and $10 million, and
- 40% on earnings linked to balances above $10 million.
The Government have indicated that the thresholds will be indexed to inflation over time in fixed increments:
- $150,000 increments for the $3 million threshold, and
- $500,000 increments for the $10 million threshold.
Earnings
For Division 296 purposes, earnings include a member’s share of the fund’s taxable investment income, such as:
- dividends and franking credits
- interest
- rent
- trust distributions
- realised capital gains (after the standard one-third discount for super funds)
Unrealised gains (increases in asset values that have not been realised through a sale) are not included under the final legislation.
Where a fund has multiple members, total earnings are calculated at the fund level and then allocated to members based on their share of the fund.
Special capital gains rules for SMSFs
Self-managed super funds (SMSFs) will be able to elect transitional relief so the new tax only applies to investment growth occurring after 30 June 2026.
To access this relief:
- the fund must record market values of its assets at 30 June 2026, and
- an election must be made before the 2026–27 SMSF annual return is due.
This ensures that capital gains accumulated before the new tax begins are not included in Division 296 calculations.
Further guidance from the ATO is expected. The election deadline is anticipated to align with the 2026–27 SMSF annual return.
Actions to consider before 30 June 2026
Review unrealised capital losses
Review your investments and identify any unrealised capital losses. Realising these losses prior to 30 June 2026 may help minimise potential Division 296 exposure.
Obtain accurate asset valuations
Ensure market valuations are obtained for all SMSF assets as at **30 June 2026**. Independent valuers should be used for property and reliable sources for other investments to ensure valuations are acceptable for audit purposes.
Cost base adjustment planning
Consider undertaking planning and modelling to determine whether making a cost base adjustment election will be beneficial, particularly if Division 296 tax may apply to you in the future.
Maintain accurate SMSF records
Ensure cost base records are up to date and that your accountant and auditor have access to the latest information. Retain supporting documentation, particularly market valuation records, for audit and compliance purposes.
Any changes you make to your SMSF should be discussed with your advisor. If you would like to discuss how these changes may affect your superannuation strategy, please contact our office.