Australia’s superannuation system is undergoing one of its biggest changes in decades with the introduction of Division 296 tax, effective from 1 July 2026. The reform targets individuals with large super balances and changes how earnings above certain thresholds are taxed.
According to the Australian Taxation Office and recent 2026 legislative updates, the new rules introduce tiered taxation, revised earnings calculations, and new reporting obligations, making it essential for affected taxpayers to understand how the tax works and how to prepare.
What Is Division 296 Tax?
Division 296 is an additional tax on superannuation earnings for individuals whose total super balance exceeds $3 million.
Key Changes from 1 July 2026
- Applies to earnings above $3 million
- Introduces a second threshold at $10 million
- Applies additional tax at the individual level
- Excludes unrealised capital gains (final legislation change)
Recent legislation confirms:
- Earnings above $3M taxed at an additional 15%
- Earnings above $10M taxed at a further 10% (total up to 25%)
This effectively increases the tax rate on high-balance super earnings to 30% and up to 40% in total depending on the tier.
How Division 296 Tax Is Calculated
The calculation follows a 3-step process, combining your total super balance, earnings, and proportion above thresholds.
Step 1: Calculate Your Total Super Balance (TSB)
Your Total Superannuation Balance (TSB) determines whether Division 296 applies.
| Threshold | Impact |
| Below $3M | No Division 296 tax |
| $3M – $10M | Additional 15% tax on earnings above threshold |
| Above $10M | Additional 25% tax on top-tier earnings |
Transitional Rule (Important)
For the first year (2026–27):
- Only your closing balance at 30 June 2027 is used
- This creates a planning opportunity before that date
Step 2: Calculate Your Super Earnings
Each super fund reports your earnings to the Australian Taxation Office, which aggregates them.
What Is Included?
- Taxable income (adjusted)
- Concessional contributions
- Pension phase income adjustments
- Certain non-arm’s length income
The final legislation confirms earnings are based on actual realised income, not unrealised gains.
Step 3: Apply the Division 296 Formula
The core calculation is:
Division 296 Tax = Earnings × Proportion Above Threshold × Tax Rate
Worked Example (ATO-Style Calculation)
Scenario
| Item | Amount |
| Total super balance | $5.5 million |
| Threshold | $3 million |
| Earnings | $500,000 |
Step 1: Calculate Proportion Above Threshold
[ (5.5M – 3M) ÷ 5.5M = 45.45% ]
Step 2: Apply to Earnings
[$500,000 × 45.45% = $227,250]
Step 3: Apply Tax Rate (15%)
[$227,250 × 15% = $34,088]
Final Tax Payable
Division 296 Tax = $34,088
This methodology aligns with industry and ATO-aligned examples used in 2026 guidance.
Example 2: Smaller Impact Case
| Item | Amount |
| Earnings | $175,000 |
| Proportion above threshold | 11.76% |
[$175,000 × 11.76% = $20,580]
[$20,580 × 15% = $3,087]
Even with large balances, the tax often represents a small percentage of total earnings.
Key Features of Division 296
- Applies to Individuals (Not Funds)
The tax is assessed to you personally, not the super fund
- Aggregates All Super Accounts
All balances across funds are combined for assessment.
- Payment Flexibility
You can:
- Pay personally, or
- Release funds from super via the Australian Taxation Office
- First Tax Bills Arrive in 2027–28
ATO assessments will be issued after the first calculation year.
What Taxpayers Should Do Before 1 July 2026
With the new rules approaching, proactive planning is critical.
- Review Your Super Balance
- Identify if you are approaching or exceeding $3 million
- Consider future growth projections
- Consider Strategic Withdrawals
During the transitional year, reducing your balance before 30 June 2027 may reduce or eliminate liability.
- Reassess Investment Strategy
- Shift focus between income vs growth assets
- Manage timing of capital gains realisation
- Review SMSF vs Industry Fund Structures
Different fund types may:
- Calculate earnings differently
- Require actuarial input in some cases
- Plan for Liquidity
Division 296 tax may apply even if earnings are not fully cash-based—ensure you can fund the liability.
- Seek Professional Advice
The complexity of:
- CGT adjustments
- Pension phase interactions
- Estate planning
means advice is essential for high-balance members.
Why This Tax Matters
Division 296 is not just a new tax, it represents a structural shift in how superannuation is taxed in Australia, moving toward balance-based taxation rather than purely concessional treatment.
While it initially affects a small percentage of Australians, over time:
- Investment growth
- Indexation changes
may bring more individuals into scope.
Conclusion
The Division 296 tax introduces a more complex, targeted approach to taxing high superannuation balances from 1 July 2026. By applying additional tax only to earnings above key thresholds, it aims to reduce concessions for very large balances while maintaining incentives for most Australians.
However, the calculation method based on proportional earnings and aggregated balances means even small changes in your super strategy can significantly impact your tax outcome.
Guidance from the Australian Taxation Office and recent 2026 industry updates makes one thing clear: early planning is critical.
Taking action before 1 July 2026 particularly during the transitional window can help minimise tax exposure, improve flexibility, and ensure your super strategy remains effective in the new environment
How can we help?
If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.
General Advice Warning
The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
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