Division 296: What Australia's New Super Tax Means for High-Balance Investors
Recent economic uncertainty has reminded many Australians of the importance of long-term financial planning. While market sentiment continues to fluctuate amid ongoing discussions around inflation and interest rates, changes to Australia's superannuation system are creating a new planning consideration for individuals with larger retirement savings balances.
Following extensive parliamentary debate, the Federal Government has enacted the Treasury Tax Laws Amendment (Building a Stronger and Fairer Super System) Act 2026, introducing what is commonly referred to as Division 296.
This new legislation reduces the tax concessions available to individuals with substantial superannuation balances and is expected to impact a growing number of Australians over time.
What is Division 296?
From 1 July 2026, Division 296 introduces an additional tax on superannuation earnings attributable to individuals whose Total Superannuation Balance (TSB) exceeds specified thresholds.
Importantly, this tax is separate from the existing 15% tax paid within most superannuation funds. Instead, it is assessed directly to the individual by the Australian Taxation Office (ATO).
The objective of the legislation is to reduce the concessional tax treatment available to larger superannuation balances while maintaining existing arrangements for most Australians.
Understanding Your Total Superannuation Balance
Your Total Superannuation Balance represents the combined value of all your superannuation interests across all Australian superannuation funds.
For the first year of operation (2026/27), the relevant balance will be measured as at 30 June 2027. In future years, the legislation uses the higher of:
Your balance immediately before the start of the financial year; or
Your balance at the end of the financial year.
This approach is designed to prevent individuals from temporarily reducing balances prior to year-end in an attempt to avoid the additional tax.
The New Thresholds
Division 296 introduces two balance thresholds:
Balances Above $3 Million
Individuals with a TSB exceeding $3 million may be subject to an additional 15% tax on the proportion of earnings attributable to the balance above the threshold.
Balances Above $10 Million
Individuals with a TSB exceeding $10 million may be subject to an additional 25% tax on earnings attributable to the balance above this higher threshold.
From the 2027/28 financial year, both thresholds will be indexed to inflation, helping to reduce the impact of bracket creep over time.
How Are Earnings Calculated?
Under the final legislation, Division 296 earnings are based on a fund's taxable income rather than movements in asset values alone.
This generally includes:
Interest income
Dividends and franking credits
Rental income
Realised capital gains (after applicable discounts)
Notably, unrealised capital gains are not included under the current legislation.
The method of attributing earnings differs depending on the structure of the superannuation fund:
Industry and retail funds allocate earnings across members on a fair and reasonable basis.
Wrap accounts calculate earnings based on the individual investments held.
Self-managed super funds (SMSFs) may require actuarial certification where multiple members exist.
Single-member SMSFs are not required to obtain an actuarial certificate and may have access to a one-off cost base reset for eligible assets as at 30 June 2026.
Practical Examples
Example 1: Balance of $4.5 Million
An individual has:
Total Superannuation Balance: $4.5 million
Attributable earnings: $150,000
Only one-third of the balance sits above the $3 million threshold.
The additional Division 296 tax would be approximately $7,500.
Example 2: Balance of $12 Million
An individual has:
Total Superannuation Balance: $12 million
Attributable earnings: $600,000
Because the balance exceeds both the $3 million and $10 million thresholds, both tax tiers apply.
The total additional Division 296 tax would be approximately $77,500.
How Will the Tax Be Paid?
Division 296 is not self-assessed.
The ATO will:
Calculate an individual's total superannuation balance and attributable earnings;
Determine any Division 296 liability; and
Issue a notice of assessment directly to the individual.
Individuals may choose to:
Pay the tax personally from outside superannuation; or
Elect to release funds from their superannuation to satisfy the liability.
Are Any Exemptions Available?
Limited exemptions apply under the legislation, including certain child beneficiaries receiving superannuation income streams and individuals who have made structured settlement contributions arising from personal injury claims.
Special provisions also apply in the event of death, particularly during the initial year of operation.
Strategic Considerations for Investors
While Division 296 will only affect a relatively small proportion of Australians initially, it introduces a new layer of complexity for those with significant superannuation balances.
For affected investors, the focus should remain on long-term wealth management rather than short-term reactions.
Potential strategies that may warrant consideration include:
Reviewing contribution strategies between spouses;
Assessing the appropriate balance between superannuation and non-superannuation investments;
Evaluating estate planning objectives;
Considering philanthropic and charitable giving strategies; and
Reviewing the role of family structures and investment entities within an overall wealth plan.
Importantly, the right approach will vary significantly depending on individual circumstances, objectives, and tax positions.
Looking Ahead
Division 296 represents one of the most significant changes to the taxation of superannuation in recent years. While the legislation introduces additional tax considerations for larger balances, superannuation remains one of the most tax-effective structures available for retirement savings.
As with all major legislative changes, proactive planning and regular review are essential.
If you would like to understand how Division 296 may impact your personal circumstances, the team at ODV Private Wealth can help you assess your position and develop a strategy aligned with your long-term financial goals.
For further information, or to book an appointment to ensure your business or trust affairs are in order, call ODV Private Wealth on (08) 8352 2522 or email planning@odvwealth.com.au.
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