Division 296 tax: what the $3 million super rule means for you

There’s a reason Division 296 tax is popping up everywhere at the moment — once super balances start getting close to the $3 million mark, people want straight answers, not jargon. From 1 July 2026, the ATO says the new rules will reduce tax concessions on super earnings above the large super balance threshold, which starts at $3 million for 2026–27.

If you’re a wealth manager, SMSF trustee, or retiree with a large super balance, this guide breaks down what you need to know — in plain English.

What is Division 296 tax?

Division 296 tax is an additional tax on the earnings linked to super balances above the threshold. The ATO says it applies to individuals whose total super balance exceeds $3 million, with a further tier for balances above $10 million.

In plain English, it’s a new tax layer aimed at very large super accounts, including SMSFs and retirement phase accounts. This is part of the government’s better targeted super concessions policy to reduce tax benefits for the wealthiest super members.

When does Division 296 start?

The law applies from 1 July 2026, with the first relevant financial year being 2026–27. The ATO’s published guidance says the first Division 296 assessment will be based on earnings for that year, and notices will follow after the end of that period.

That timing matters, because it gives advisers and trustees a short window to review balances, earnings, and strategy before the first assessment cycle kicks in.

How the tax works

For balances above $3 million, the ATO says Division 296 tax is 15% on the proportion of earnings relating to the amount above that threshold. For balances above $10 million, there’s an additional 10% on the proportion of earnings linked to that higher tier, taking the effective extra burden to 25% on that slice.

The thresholds will be indexed in:

• $150,000 increments for the $3 million threshold
• $500,000 increments for the $10 million threshold

What counts as earnings?

This is where a lot of people get caught out. The guide says Division 296 earnings are based on realised earnings, not unrealised gains, so it captures things like interest, dividends, rent and net capital gains rather than paper gains on assets you still hold.

That’s a big distinction, especially for SMSFs with property or listed assets that have moved sharply in value but haven’t been sold.

Who should pay attention?

If your super is nowhere near $3 million, this probably won’t change your day-to-day planning. But if you’re close to the Division 296 threshold, or already over it, the new rules can affect:

• Contribution strategy
• Pension design
• Asset allocation
• Timing of withdrawals

SMSF Division 296 trustees should pay extra attention because the ATO says funds will need to report new information for members with Division 296 exposure from 2026–27 onward.

Learn more about SMSF planning strategies to protect your super balance.

Why the calculator matters

A Division 296 calculator can be useful for getting a rough read on the likely tax outcome before year-end. Ord Minnett’s calculator is aimed at showing the tax impact on balances over $3 million, and it highlights the two-tier structure at $3 million and $10 million.

That said, a calculator is only a starting point — the actual result depends on realised earnings, fund structure, and how your super balance moves through the year.

Try the Division 296 calculator to model your potential tax outcome.

How Division 296 tax works by super balance

Planning points to think about

If you’re affected, don’t rush into moving money out of super without looking at the bigger tax picture. The guide warns that withdrawing funds without advice can create worse outcomes elsewhere, and any strategy should consider:

• CGT (capital gains tax)
• Pension phase effects
• Growth assets
• Future liquidity needs

For SMSFs, the optional grandfathering treatment for certain assets held on 30 June 2026 may also matter, but it needs to be assessed carefully because it can help in some cases and hurt in others.

Read our tax planning guide for strategies to minimise your overall tax burden.

Frequently Asked Questions

What is Division 296 tax?

Division 296 tax is an additional 15% tax on earnings linked to super balances above the $3 million threshold. For balances above $10 million, there’s an additional 10% on earnings above that tier, bringing the effective extra burden to 25% on that slice. It applies from 1 July 2026.

Does Division 296 apply to SMSFs?

Yes, Division 296 applies to Self-Managed Super Funds (SMSFs) just like any other super fund. SMSF trustees need to pay extra attention because the ATO requires funds to report new information for members with Division 296 exposure from 2026–27 onward.

Learn more about SMSF strategy for managing Division 296 exposure.

Is Division 296 based on unrealised gains?

No, Division 296 is based on realised earnings, not unrealised gains. This means it captures interest, dividends, rent, and net capital gains from assets that have been sold, rather than paper gains on assets you still hold. This is important for SMSFs with property or listed assets that haven’t been sold.

Final word

Division 296 tax is not just another bit of super trivia — it’s a proper planning issue for anyone with a large balance. If you’re near the threshold, the smart move is to model the likely outcome now rather than waiting for the first assessment notice to land.

The earlier you get across it, the more room you’ve got to make sensible decisions instead of scrambling later.

For long-term strategies, check out our retirement planning guide.