Overview
In March 2026, Parliament passed the Building a Stronger and Fairer Super System Bill, introducing a new tax regime commonly referred to as Division 296. These changes represent a significant shift in how superannuation tax concessions apply to individuals with high superannuation balances, while leaving the core super system intact for the vast majority of Australians.
Division 296 introduces an additional personal tax on certain superannuation earnings where an individual’s Total Superannuation Balance (TSB) exceeds defined thresholds. The measures commence from 1 July 2026, with the first assessments expected in the year commencing 1 July 2027.
Who is affected?
Division 296 applies only to individuals, not superannuation funds or employers. An individual may be affected if:
- their TSB exceeds $3 million, measured across all superannuation interests, including Self-Managed Super Funds (SMSFs), APRA regulated funds and defined benefit interests, and/or
- they have superannuation earnings within the scope of the new rules.
Even if part of your super is in the retirement phase, it is still counted towards your overall TSB for Division 296 purposes.
The Government and industry bodies estimate that Division 296 affects a small proportion of Australians, generally those with the largest super balances, while maintaining concessional treatment for most members.
The thresholds
The final legislation introduces two indexed thresholds:
| TSB | Tax treatment on earnings |
| Up to $3 million | No change – existing super tax rules apply |
| $3 – $10 million | Additional 15% tax on attributable earnings |
| Above $10 million | Additional 25% tax on attributable earnings |
These additional taxes sit on top of existing super earnings tax, resulting in:
- an effective 30% tax rate on earnings attributable to balances between $3 – $10million, and
- an effective 40% tax rate on earnings attributable to balances above $10 million.
Crucially, the higher rates apply only to the proportion of earnings attributable to the excess balance, not to the entire super account. Further, both thresholds are indexed to inflation, addressing earlier concerns about “bracket creep” over time.
What earnings are taxed?
A major change from earlier proposals is that Division 296 applies only to realised earnings. Under the enacted model:
- Earnings are calculated using concepts broadly aligned with existing income tax principles.
- Unrealised capital gains are not taxed.
- Earnings include items such as interest, dividends and realised capital gains, adjusted for certain contributions and withdrawals.
This revision followed extensive industry criticism of the original proposal to tax unrealised gains and was confirmed in Treasury’s reworked legislation and subsequent commentary.
How is Division 296 tax assessed and paid?
Division 296 is a personal tax liability, assessed to the individual, not the superannuation fund. Key mechanics include:
- The ATO calculates the individual’s Division 296 liability using information reported by super funds.
- Affected individuals receive a notice of assessment from the ATO.
- Individuals may choose to:
- pay the tax from personal funds, or
- elect to release money from super using a release authority, similar to Division 293 tax.
This approach avoids placing the tax burden on fund trustees while still allowing super balances to be used to meet the liability if needed.
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Example – Individual with a $12 million TSB
Facts
- Michael is an Australian resident individual.
- On 30 June 2027, Michael’s TSB across all superannuation interests is $12 million.
- During FY27, Michael’s superannuation funds report $840,000 of realised superannuation earnings attributable to him.
- All earnings are assumed to be in accumulation phase.
- Michael has no defined benefit interests.
Step 1: Identify how Michael’s balance is split across the thresholds
Division 296 applies proportionately as follows:
| Portion of TSB | Amount |
| Up to $3 million | $3,000,000 |
| Difference between $3 – $10million | $7,000,000 |
| Amount above $10 million | $2,000,000 |
| Total | $12,000,000 |
Remember, only the earnings above $3 million are subject to Division 296. Further, only $2 million is subject to the higher tier.
Step 2: Calculate the proportion of earnings attributable to each tier
Total realised earnings: $840,000
Split between the different tiers:
| Tier | Proportions | Proportion of earnings | % of earnings |
| Up to $3 million | $3,000,000 | ($3,000,000 / $12,000,000) x $840,000 = $210,000 | 25% |
| $3 – $10 million | $7,000,000 | ($7,000,000 / 12,000,00) x $840,000 = $490,000 | 58.3% |
| Above $10 million | $2,000,000 | ($2,000,000 / $12,000,000) x $840,000 = $140,000 | 16.7% |
| Total | $12,000,000 | $840,000 | 100% |
Step 3: Apply the Division 296 tax rates
| Tier | Proportion of earnings | Additional Tax Rate | Tax |
| Up to $3 million | $210,000 | nil | nil |
| $3 -$10million | $490,000 | 15% | $73,500 |
| Above $10million | $140,000 | 25% | $35,000 |
| Total Division 296 Tax Payable | $108,500 | ||
Step 4: How Michael pays the tax
The ATO issues Michael with a Division 296 assessment for $108,500 and Michael will need to decide whether to:
- pay the tax personally, or
- elect to release $108,500 from super via a release authority.
Observations from this example
- The top rate does not apply to all earnings, only to the portion attributable to balances above $10 million.
- Division 296 operates like a marginal tax system, similar to personal income tax.
- Even at $12 million, super remains concessionally taxed relative to top marginal personal tax rates.
- Liquidity planning becomes more important, particularly for SMSFs holding property or private illiquid assets.
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Treatment of losses and negative earnings
Under the final rules, if Division 296 earnings are negative in a year, the tax assessment will be nil. There is no refund and no carry forward of Division 296 losses but fund level tax losses continue to be dealt with under existing superannuation tax rules. This represents another departure from earlier drafts that contemplated quarantining losses across years.
Defined benefit interests and special rules
Defined benefit schemes (such as certain public sector schemes) are treated differently due to the absence of individual account balances. Treasury regulations support Division 296 by:
- Providing valuation methodologies for defined benefit interests
- Modifying the earnings formula to account for notional contributions.
- Allowing payment of the tax only when benefits become payable, rather than annually.
Timing and transitional issues
Key timing points include:
- 1 July 2026 – Division 296 commences.
- 30 June 2027 – First measurement point for earnings and balances.
- FY2028 – First Division 296 assessments expected to be issued.
Division 296 also applies in the year of death where the individual’s opening TSB exceeds $3 million, a point that has attracted commentary due to estate administration complexities.
What should you do if you are affected?
For individuals approaching or exceeding the thresholds, you should:
- Review your TSB across all funds.
- Understand liquidity constraints, particularly for SMSFs holding illiquid assets.
- Monitor ATO guidance and fund reporting processes.
- Seek licensed financial or tax advice before making structural changes.
Importantly, employers’ Super Guarantee obligations do not change, and Division 296 does not alter contribution caps or access rules.
How Moore Australia can help
Division 296 represents a significant change in Australia’s Superannuation landscape. The final legislation narrows its impact, removes the most controversial features of earlier drafts, and confines higher taxation to earnings on the largest super balances, while preserving super’s concessional nature for most Australians.
As everybody’s circumstances are different, individual consideration is essential to ensure that, if you are affected, you do not pay more tax than necessary. Tailored planning could result in significant savings. Please contact your Moore Australia advisor to discuss your situation and how this change will impact you.
