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The Australian Government has now passed the Division 296 tax, commonly referred to as the “$3 million supertax”. While headlines around the change can sound confronting, the practical impact is limited to a small number of people, and for most, there is no need to rush into major decisions.
This article explains what the new rules mean, how they work in practice, and why careful planning, rather than knee‑jerk action, is usually the right approach.
What Is the Division 296 Tax?
Currently, investment earnings inside superannuation are taxed at concessional rates:
- 15% in accumulation phase
- 0% in retirement phase (within existing pension limits)
Division 296 introduces an additional tax on earnings attributable to very large super balances. It does not cap how much you can hold in super, but it reduces the level of tax concession on earnings once an individual’s total super balance exceeds certain thresholds.
In broadterms:
- For balances between $3 million and $10 million, an additional 15% applies to the relevant earnings (bringing the effective tax rate to 30%).
- For balances above $10 million, a higher tier applies, with an additional 25% (an effective rate of 40% on that portion).
Key Facts for Your Planning
Start date and first assessment
- The new tax applies from 1 July 2026
- The first time balances are tested is 30 June 2027
Indexed thresholds
- Both the $3 million and $10 million thresholds are indexed to inflation
- Increases occur in set steps:
- $150,000 for the $3 million threshold
- $500,000 for the $10 million threshold
This helps prevent people being drawn into the tax purely due to long‑term inflation.
A personal tax, not a fund tax
- Division 296 is assessed personally to you by the ATO
- You can choose to:
- Pay the tax personally, or
- Elect to have funds released from your super to pay it (similar to Division 293 tax)
How Are “Earnings” Calculated?
One ofthe most discussed aspects of Division 296 is how “earnings” are measured.
What changed from earlier proposals
Earlier drafts proposed taxing unrealised gains, increases in asset values even if nothing was sold. This created widespread concern, particularly for SMSFs holding property or other illiquid assets.
The final legislation removed that approach.
How it works now
Instead of taxing year‑to‑year revaluations:
- Division 296 uses a balance‑movement calculation that compares your total super balance at the beginning and end of the year
- This calculation is adjusted for contributions and withdrawals
- Super funds report realised earnings and realised capital gains to support this process
This means you are not directly taxed on “paper gains”. For SMSFs, the calculation now aligns more closely with actual income and realised investment outcomes, rather than asset revaluations alone.
Important integrity rule
The threshold test applies using the higher of your opening or closing balance for the year. This prevents last‑minute withdrawals from avoiding the tax.
The SMSF Cost‑Base Reset Opportunity
For SMSFs with long‑held assets, the law includes a valuable transitional option.
You may elect to reset the cost base of all SMSF assets to their market value as at 30 June 2026 for Division 296 purposes.
This:
- Creates a clear “line in the sand”
- Ensures growth that occurred before the new tax starts is not counted in future Division 296 calculations
Important points:
- The election is optional
- It is “all‑or‑nothing” across the fund, assets cannot be selected individually to “cherry-pic”" winners.
- The reset applies only for Division 296 calculations, not standard CGT or fund tax
Strategies We Are Reviewing With Clients
With the tax commencing in mid‑2026, the period before then is a planning window, not a deadline to act. Areas we are reviewing include:
Member equalisation
Where one partner is above the $3 million threshold and the other is well below, adjusting balances within contribution caps and super rules may reduce exposure on a family basis.
Death‑benefit planning
Super death benefits paid to a surviving spouse can increase their balance above the threshold. Reversionary pensions and beneficiary strategies are being reviewed to ensure outcomes remain tax‑effective.
Should you withdraw from super?
In many cases, even at a 30% tax rate, super can remain more tax‑effective than holding the same investments personally at the top marginal tax rate (45% plus Medicare levy). Withdrawing purely to avoid Division 296 may not improve overall outcomes.
What Should You Do Now?
For most people, the answer is nothing…yet. There is generally no need for rushed withdrawals or major structural changes.
The rightstrategy depends on:
- Your age and retirement stage
- Your total super balance across all funds
- Your other income and investments
- Your long‑term estate and succession plans
If you are approaching or above the $3 million mark and would like clarity, we can help you understand exactly how Division 296 may apply to your situation.
If you have questions, please contact our team to arrange a Division 296 Health Check, where we can step through the rules using your own numbers and ensure your strategy remains aligned with your long‑term goals.
GeneralAdvice & Tax Disclaimer
The information provided in this article is general in nature only and has been prepared without considering your specific investment objectives, financial situation, or particular needs. It does not constitute personal financial, legal, or taxation advice.
While we aim to provide helpful insights into the Division 296 legislation, P3 Financial Planning and its advisers are not registered tax agents. Tax laws are complex and their application can vary significantly based on individual circumstances. Before making any financial or tax-related decisions, you should:
- Consult with a registered tax agent or qualified accountant regarding your specific tax position and any potential liabilities under Division 296.
- Seek personalized advice from a licensed financial professional.
- Read any relevant Product Disclosure Statements (PDS) before acquiring a financial product.
Sources & Further Reading
For those who wish to review the underlying legislation and expert commentary used to prepare this summary, please refer to the following resources:
Australian Parliament: Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2024
MLC Technical: Division 296 Tax Passed: What You Need to Know
SMSF Adviser: Super Tax Bill Passes Through Senate—What’s Next?
SMSF Magazine: Planning Asset Sales to Manage Division 296 Impact
SMSF Magazine: Impact of Death Benefit Pensions on Division 296 Thresholds
SMSF Adviser: Now Legislation Has Passed: A Roadmap for Trustees
