Division 296 Tax: Managing Super Balances Over $3 Million
Written by Kurt Armbruster, Financial Adviser | Last reviewed: 20th September 2026
Division 296 tax applies from 1 July 2026 to individuals whose total superannuation balance exceeds $3 million. It adds a further 15% tax on the share of fund earnings attributable to the balance above $3 million, lifting the effective rate on those earnings to 30%. For balances above $10 million, a further 10% applies to the earnings attributable to that portion, for an effective rate of 40%. Both thresholds are indexed over time.
The introduction of Division 296 represents a significant shift for high-balance superannuation accounts, necessitating a proactive and strategic review of existing investment structures. The extra tax can significantly affect net portfolio growth over time. Mitigating this impact requires a delicate balance between seeking long-term capital appreciation and optimising for tax efficiency.
Strategies such as spouse balance equalisation, multi-tier investment structures, or diversifying into alternative tax-effective vehicles may be appropriate depending on your broader financial position. It is essential to consult with a qualified financial adviser to model your potential exposure and adjust your asset allocation to preserve wealth whilst remaining compliant with the new legislative landscape.
What is Division 296 tax?
Division 296 is the part of the tax law that imposes additional tax on earnings for individuals with large superannuation balances. It sits on top of the standard 15% tax that super funds already pay on earnings in accumulation phase. The tax is assessed to the individual, not the fund, and the threshold applies per person rather than per fund. An SMSF with $4 million shared between two members may therefore have no Division 296 exposure at all.
How are Division 296 earnings calculated?
01
Realised earnings, not paper gains
Division 296 uses a fund-level realised earnings approach. Capital gains are generally counted only when an asset is sold, and only growth after 30 June 2026 is included. This means the timing of asset sales inside super matters. A large realised gain in a single year, such as the sale of a commercial property, can create a meaningful Division 296 liability for members above the threshold.
02
The cost base reset election for SMSFs
SMSFs and other small funds can elect to reset the cost base of their CGT assets to market value at 30 June 2026 for Division 296 purposes. This keeps growth that occurred before the tax commenced outside the calculation. The election applies to all of the fund’s CGT assets, is irrevocable, and does not change the fund’s ordinary income tax position, so it should be modelled carefully before it is made.
03
Paying the tax and managing liquidity
Once the ATO issues an assessment, the individual can pay the tax personally or request that it be released from their super. Either way, trustees and fund members should ensure that their liquidity management frameworks are sufficiently robust to accommodate potential tax obligations without forcing the premature disposal of core assets. Holding an adequate cash buffer or maintaining access to liquid yield-generating investments within or outside the superannuation environment becomes a crucial design element for the overall portfolio architecture.
Not sure if Division 296 applies to you?
Book a chat with our superannuation advisers to model your exposure before 30 June 2027.
Strategies to review before 30 June 2027
For the first year, 2026-27, Division 296 eligibility and the amount of tax are determined by reference to your total super balance at 30 June 2027. Structural adjustments ought to be evaluated well in advance of that date and each subsequent reporting date.
Equalising balances between spouses
Because the $3 million threshold applies to each individual, equalising superannuation balances between spouses using strategic contribution splitting or spouse contributions can effectively double the threshold capacity for a family unit, provided both individuals have remaining cap room. A re-contribution strategy can also be used to move capital from one spouse’s account to the other once a condition of release has been met.
Alternative structures outside super
Where balances cannot be reallocated within superannuation, alternative investment structures such as family discretionary trusts or investment bonds might offer complementary benefits. Each alternative brings its own regulatory and tax considerations, meaning a comprehensive comparative analysis is vital to ensure that secondary structures do not introduce unintended administrative friction or excessive ongoing compliance costs. Our wealth management team can help compare these options.
Building a long-term Division 296 strategy
Ultimately, navigating the Division 296 landscape demands a holistic approach that bridges wealth preservation, tax planning, and succession objectives. Engaging early with professional financial advisers and estate planning specialists ensures that your overarching strategy remains resilient against ongoing legislative evolutions. By modelling various scenarios and adopting a flexible capital allocation model, investors can successfully protect their long-term wealth whilst fulfilling all statutory compliance requirements.
Division 296 FAQs
Division 296 applies from 1 July 2026. For the first year, 2026-27, whether you are affected and how much tax applies is worked out using your total superannuation balance at 30 June 2027. The ATO then issues an assessment to each affected individual after funds report their earnings, so the first assessments will arrive after the 2026-27 financial year ends.
No. The law as passed uses a fund-level realised earnings approach. Capital gains are generally counted when an asset is sold, and only growth after 30 June 2026 is included. This replaced the original 2023 proposal, which would have taxed movements in balances, including unrealised gains. Many older articles online still describe the original proposal.
Per person. Each individual’s total superannuation balance is tested separately, across all of their super accounts. A couple with $2.5 million each, or an SMSF with $4 million split between two members, may not be affected. This is why balance equalisation between spouses is one of the first strategies advisers review.
An extra 15% applies to the share of earnings attributable to the balance above $3 million, giving an effective rate of 30% on those earnings. A further 10% applies to the share attributable to the balance above $10 million, giving an effective rate of 40%. Both thresholds are indexed over time.
Yes. The ATO issues the assessment to you personally. You can pay it from your own funds or request that the amount be released from your superannuation. Your choice affects liquidity inside and outside super, so it is worth planning which option suits your portfolio before the first assessment arrives.
Division 296 is a planning problem, not just a tax bill. Speak with our superannuation financial advice team about your balance, your structure and your options. Book a chat or call 0449 890 302.
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This content is general advice only and does not take into account your personal objectives, financial situation, or needs. Before acting on this information, consider its appropriateness to your circumstances and seek professional financial advice. Authorised Representative of Templestone Financial Services Pty Ltd AFSL No. 523831. Trustee for the Armbruster Family Trust T/A Super Financial Advice.