Super vs Non-Super: How to Optimize Tax on Large Balances (Division 296 Super Tax Guide)

Division 296 super tax starts July 1, 2026, and if you’ve got more than $3 million in super, you need to pay attention.

A client walked into my office last month- $4.2 million super balance, just sold his manufacturing business, feeling pretty chuffed about hitting his retirement number. Then I asked him one question: “Have you planned for the Division 296 super tax starting July 1st?”

Blank stare.

“What’s that?”

Mate, if you’ve got more than $3 million in super and you haven’t heard about Division 296 super tax, you need to pay attention. This isn’t some distant threat- it starts in 145 days, and it could cost you an extra $30,000-$150,000+ annually depending on your balance and earnings.

Here’s the thing nobody’s talking about loudly enough: super is no longer a tax-free wonderland once you hit $3 million. The rules changed. And if you’re a business owner who just exited, or you’ve accumulated a large balance through property, salary sacrifice, and good investing, you need a new strategy.

Let me walk you through what Division 296 Super Tax actually means, who it affects, and- most importantly – the legal strategies to minimize the damage and optimize your tax between super and non-super assets.

What Is Division 296 Super Tax ? (The Basics)

Division 296 Super Tax is an additional tax on superannuation earnings for individuals whose total super balance exceeds $3 million Division 296 Super Tax is for individuals whose total super balance exceeds $3 million Latest news on tax and superannuation law and policy | Australian Taxation Office.

Here’s how it works:

The Tax:

• An extra 15% tax on earnings attributable to balances between $3M and $10M
• An extra 25% tax (15% + 10%) on earnings attributable to balances over $10M

When It Starts:

• July 1, 2026 (FY 2026-27 is the first year it applies)

Who Pays:

• You (the individual), not your super fund
• You can pay it from personal funds or direct your super fund to release money to cover it

Key Change from Original Proposal:
The government backed down from taxing unrealised gains (thank god) and revised it to only tax realised earnings – actual dividends, interest, rent, and realised capital gains.

Indexation:
Both the $3M and $10M thresholds will be indexed to CPI annually, so they’ll move up over time.

Let me give you a real example so this makes sense.

Real Example: How Division 296 Super Tax Actually Works

Let’s say you’re 62, recently retired, and have:

• Total Super Balance (TSB): $4.5 million on June 30, 2027
• Super earnings for FY 2026-27: $350,000 (realised dividends, interest, capital gains)

Here’s the calculation:

Step 1: Calculate the proportion over $3M

• Amount over threshold: $4.5M – $3M = $1.5M
• Proportion: $1.5M ÷ $4.5M = 33.33%

Step 2: Apply that proportion to your earnings

• Taxable earnings: $350,000 × 33.33% = $116,655

Step 3: Apply the 15% Division 296 Super Tax

• Division 296 tax: $116,655 × 15% = $17,498

So even though your super is in pension phase (normally 0% tax on earnings), you’ll personally owe the ATO an extra $17,498 for the 2026-27 financial year.

If your balance was $12 million instead? You’d be paying 15% on the portion between $3M-$10M, and 25% on the portion over $10M. That gets expensive fast.

ASFA_fact-sheet_tax-liability-under-Div-296.pdf

Why This Changes Everything for Business Owners

Most of my business owner clients have been told the same thing for decades: “Get as much into super as possible, it’s the most tax-effective structure.”

That was true. Past tense.

If you’re sitting on a $6 million super balance (not uncommon after a business sale, CGT cap contributions, and years of concessional contributions), here’s what you’re now facing:

• Inside super (pension phase): 0% tax on earnings… except Division 296 adds 15% on the proportion over $3M
• Outside super (personal name, trust, company): Investment earnings taxed at your marginal rate (up to 47% for individuals, 25-30% for companies, potentially lower for trusts with distributions)

Suddenly, the math isn’t so clear-cut.

For some clients, it now makes sense to:

• Stop putting money into super and build non-super portfolios instead
• Draw down super more aggressively to stay under the $3M threshold
• Use spouse splitting to keep both partners under $3M each (instead of one over, one under)
• Structure property and other growth assets outside super to avoid inflating the TSB

Let me show you how we actually optimise this for clients.

Strategy 1: Keep Your Super Balance Under $3 Million

The most obvious Division 296 Super Tax strategy: don’t go over $3 million in the first place or if you’re already there, get back under before June 30, 2027.

How to do it:

A. Stop Making Concessional Contributions

If you’re 60+ and still working part-time, salary sacrificing $30k/year might have made sense last year. This year? Maybe not.

Run the numbers:

• Benefit of contributing: Save 15-32% tax (depending on your marginal rate vs. the 15% contributions tax)
• Cost: Pushes your balance closer to $3M, triggering future Division 296 liability
• Cash buffer: reread this article on sequencing risk Understanding Sequence of Returns Risk in Retirement: What all Australians Need to Know. – AMGENT Wealth Management

For clients already at $2.8M-$3.2M, we often recommend stopping concessional contributions entirely and redirecting that money to non-super investments.

B. Draw Down Aggressively in Early Retirement

If you’re 65 with $3.5M in super and only need $80k/year to live, the temptation is to draw the minimum (5% = $175k) and reinvest the surplus.

Don’t.

Instead, draw $200k-$300k annually, live on $80k, and invest the rest in a non-super portfolio (your personal name, family trust, investment bond, whatever fits).

Why? Because keeping that extra $1M-$2M in super over 10 years will cost you $15k-$40k annually in Division 296 Super Tax. Better to pull it out, pay 0% tax on the withdrawal (pension phase), and manage it outside super where you control the tax timing.

C. Spouse Contribution Splitting

If you’ve got $4M and your spouse has $500k, consider rebalancing.

You can:

• Use contribution splitting (up to 85% of concessional contributions can be split to a spouse)
• Make spouse contributions (after-tax, up to $3k annually with potential tax offset)
• Withdraw from your super and gift/lend to your spouse for them to contribute (within contribution caps)

Two balances at $2.25M each = $0 Division 296 Super Tax . One at $4M, one at $500k = ongoing tax bill.

We’ve saved clients $20k-$50k/year by rebalancing super between spouses before July 2026.

Strategy 2: Build a Non-Super Investment Portfolio

Understanding Division 296 super tax Australia implications is critical when deciding where to hold your next dollar.

Option A: Inside Super

• Earnings taxed at 0% (pension phase) or 15% (accumulation)
• But Division 296 adds another 15% on the portion over $3M
• Effective tax rate on earnings over $3M: 15% (pension) or 30% (accumulation)

Option B: Outside Super (Personal Name)

• Dividends: taxed at your marginal rate (up to 47%), but franking credits can reduce this significantly
• Capital gains: 50% CGT discount if held 12+ months, taxed at marginal rate
• Flexibility: access anytime, no preservation rules, no minimum drawdowns

Option C: Family Discretionary Trust

• Distribute income to lower-income family members (adult kids, spouse)
• Potential to split income across beneficiaries at lower marginal rates
• More complexity, setup and admin costs

Option D: Investment Bond

• Taxed at 30% internally (no personal tax if held 10+ years)
• No contribution caps
• Estate planning benefits (proceeds paid directly to beneficiaries, not through estate)

For most business owners, we build a hybrid: keep $2.5M-$3M in super (maximise tax-free pension phase earnings), and hold the rest in a non-super portfolio structured for tax efficiency, see more at How to Build a Retirement Income Portfolio in Australia – AMGENT Wealth Management.

Strategy 3: Tax-Efficient Asset Location

Not all investments are taxed the same. Where you hold them matters.

Here’s how we optimize asset location for clients with balances over $3M:

Hold in Super (Under $3M):

• High-dividend Australian equities (franking credits refunded in pension phase-can’t get that outside super)
• High-turnover growth funds (capital gains taxed at 0% in pension vs. up to 23.5% outside super with CGT discount)
• Income-producing assets (bonds, hybrids, cash)

Hold Outside Super:

• Low-dividend growth shares (defer capital gains, pay 23.5% max with CGT discount when sold)
• Investment property (leverage available, depreciation benefits, CGT discount, doesn’t inflate super balance)
• Alternative assets (gold, crypto, collectibles-avoid inflating TSB, manage tax timing)

Real example:

Client: $5M total wealth

Structure:

• $2.8M in super (pension phase): VHY, CBA, Transurban, Wesfarmers (high-dividend Aussie shares) generate $140k income at 0% tax
• $2.2M outside super: VGS (international growth), investment property, cash buffer—lower income, growth-focused, tax-efficient

This way, they maximize the 0% pension phase tax on high-income assets and keep growth assets outside super where Division 296 won’t touch them.

Strategy 4: Use the CGT Small Business Concessions

If you’re selling a business and expect proceeds over $3M, the CGT small business retirement exemption lets you contribute up to $1.74 million (for 2025-26) into super outside the normal contribution caps.

Sounds great, right? Free money into super? more info at How to Split Business Exit Proceeds Fairly Among Family Members: – AMGENT Wealth Management

Not so fast.

If that contribution pushes your TSB over $3M, you’ve just triggered ongoing Division 296 Super Tax on future earnings.

Better approach for large exits:

• Use the CGT exemption to contribute up to the transfer balance cap ($2.1M from July 2026)
• Structure the rest of the sale proceeds outside super (personal name, trust, investment bond)
• Pay the 23.5% CGT (with 50% discount) on the non-super portion-yes, you pay tax upfront, but you avoid ongoing 15% Division 296 tax every year for the next 30 years

We’ve modeled this for multiple clients, and in most cases, paying CGT once beats paying Division 296 annually over a 20-30 year retirement.

Strategy 5: Transition to Retirement (TTR) Pension Manipulation

This one’s a bit technical, but powerful for people aged 60-64 who are still working.

If you’re 62, still working, and have $3.5M in super:

1. Start a Transition to Retirement (TTR) pension with part of your balance
2. Draw the maximum 10% annually ($350k if you move $3.5M into TTR)
3. Salary sacrifice back into accumulation (within the $30k cap)
4. Live off the TTR pension drawdowns + salary

Why? Because TTR pension earnings are taxed at 15% (not 0% like account-based pensions), but withdrawals from age 60 are tax-free.

You’re effectively:

• Reducing your super balance (avoiding Division 296 Super Tax )
• Accessing super tax-free
• Continuing to contribute (if it makes sense)
• Building a non-super portfolio with the excess drawdowns

We’ve used this to help clients move $500k-$1M out of super over 3-4 years before they fully retire, avoiding future Division 296 exposure.

Strategy 6: Recontribution Strategy (For Older Clients)

If you’re already in pension phase and over 60, you can:

1. Withdraw money from your super (tax-free)
2. Recontribute it as a non-concessional contribution (up to $120k/year, or $360k with bring-forward rule)

Why bother withdrawing and putting it straight back in?

Because you’re converting the taxable component of your super into the tax-free component.

This doesn’t help with Division 296 Super Tax directly, but it does improve death benefit tax outcomes (beneficiaries pay less tax) and can be combined with spouse contribution splitting to rebalance balances.

We use this for clients aged 67-74 who want to optimize their super structure before the non-concessional contribution rules tighten at age 75.

Division 296 Super Tax vs. Pension Phase: The Tax Comparison

Let’s put some real numbers on this so you can see the difference.

Scenario: $5 million super balance, $300k annual earnings

Structure	Tax on Earnings	Annual Tax Bill	Net After Tax
All in Super (Pension Phase) – Pre Division 296 Super Tax	0%	$0	$300,000
All in Super (Pension Phase) – Post Division 296 Super Tax	15% on proportion over $3M	~$18,000	$282,000
$3M Super + $2M Non-Super (Personal)	0% on $3M super, ~30% on non-super	~$18,000-$25,000	$275,000-$282,000
$3M Super + $2M Non-Super (Trust)	0% on $3M super, distributed to family at lower rates	~$10,000-$15,000	$285,000-$290,000

The sweet spot for most clients? $2.5M-$3M in super, rest outside super in tax-efficient structures. go to Tools – AMGENT Wealth Management and try our calculator Division 296 Tax Calculator 2026 – Super Balance Over $3M | Claude

Common Division 296 Super Tax Mistakes I’m Already Seeing

Mistake #1: Ignoring Division 296 Super Tax Until It’s Too Late
If you wait until June 2027 to plan, you’ve missed the opportunity to restructure. The tax is calculated on balances at June 30, 2027. You need to act before then.

Mistake #2: Panicking and Pulling Everything Out of Super
Super is still a great structure for balances under $3M. Don’t throw the baby out with the bathwater. Pension phase earnings at 0% tax is still unbeatable for that first $3M.

Mistake #3: Not Considering Spouse Balances
Two people with $2.5M each = $0 Division 296 Super Tax . One with $5M, one with $0 = massive ongoing tax. Rebalance where possible.

Mistake #4: Forgetting About Indexation
The $3M threshold is indexed to CPI annually. If you’re sitting at $3.2M today and earning 6%/year, in 5 years you might be at $4.2M, but the threshold might be $3.4M due to indexation. Model this properly.

Mistake #5: DIY Complex Strategies
Contribution splitting, recontribution strategies, trust distributions, CGT small business concessions-these aren’t DIY. One mistake can cost you six figures in tax or trigger non-compliance. Get proper advice.

What You Should Do Right Now

If you’re impacted by Division 296 super tax , here’s your action plan:
Step 1: Know Your Numbers

• Total super balance as of today
• Projected balance at June 30, 2027
• Expected annual earnings (dividends, interest, capital gains)
• Estimated Division 296 Super Tax liability

Step 2: Model Different Scenarios

• Keep everything in super
• Draw down to $3M and invest the rest outside super
• Spouse contribution splitting
• Change asset allocation (high-income assets in super, growth assets outside)

Step 3: Restructure Before June 30, 2027
You’ve got until June 30, 2027 to optimize your position for the first year of Division 296. After that, you’re locked in for FY 2026-27.

Step 4: Review Annually
Division 296 isn’t a one-time problem. Your balance will grow, thresholds will index, rules might change. This needs annual review and adjustment.

The Bottom Line

Super is no longer a tax-free wonderland for balances over $3 million. Division 296 Super Tax changes the game, and if you’re a business owner, high earner, or someone who’s accumulated a large balance, you need a new strategy.

The good news? There are legal, effective ways to minimize Division 296 Super Tax:

• Keep balances under $3M where possible
• Split balances with your spouse
• Build non-super portfolios for amounts over $3M
• Optimize asset location (high-income in super, growth outside)
• Use contribution strategies strategically (not blindly)

The bad news? If you do nothing, you’ll be writing the ATO a cheque for $20k-$100k+ every year for the rest of your retirement.

I’ve been navigating these rule changes with clients since the Division 296 draft legislation dropped in December 2025. I’ve modeled hundreds of scenarios, run the numbers on business sales, property exits, and super rebalancing strategies. There’s no one-size-fits-all answer, but there are clear principles that work.

If you’ve got more than $3 million in super-or you’re about to-don’t wing this. The cost of getting it wrong compounds every single year.