Division 296 Tax Update – March 2026

The Government has now passed a new Super tax on individuals who have more than $3m & $10m in their Superannuation. This new tax is called “Division 296 Tax” and comes into play from 1 July 2026.

What is Division 296 Tax?

Division 296 tax is a new Superannuation Tax, however assessed to the Individual, with an ability to pay the tax from Super balances. The new tax regime commences on 1 July 2026, essentially charging an extra tax for those individuals with total superannuation balances exceeding $3m & $10m.

Extra tax will be imposed on certain investment earnings of super funds for members whose balances exceed these thresholds. It is not a cap or a tax on the amount of your super balance, however an additional super tax consideration.

Why did the Government Introduce this Tax?

It reduces superannuation tax advantages for those with more than $3m & $10m in super by taxing part of their fund earnings, not the super balance itself. It applies collectively to all super funds held by a member.
Superannuation will be taxed less favourably for those with balances over $3m & $10m.

However, it is important to note that it may still be a better tax environment than other entities and structures. This will obviously depend on your personal circumstances.

How is Division 296 tax calculated?

15% x the proportion of individuals super over $3 million x “Earnings”

Plus

  • 10% x the proportion of individuals super over $10 million x “Earnings”
  • The proportions are based on the higher balance of the member’s super, at either the start or the end of the financial year.
  • There is an exception in the first year (the 2027 Financial Year), where the end-year balance will only be used.
  • The thresholds will be indexed by inflation in specified increments.

What are Earnings?

  • Earnings include taxable investment income such as rent, dividends (including franking credits), trust distributions, and realised capital gains (after cgt discounts), minus deductible expenses.
  • Unlike the original draft of this legislation unrealised capital gains are thankfully excluded.
  • Pension Super Funds are included for the purposes of calculating this specific Divison 296 Tax, if the member balances exceed the $3M & $10M amounts,
  • Each Superannuation Fund will be required to determine the value of earnings that are attributed to each member. This is likely to be done via the use of an actuarial certificate.

When will this additional tax be levied?

The Superannuation Fund and the Individual will continue to lodge their annual tax returns as they currently do. Once the ATO has received all data and information, they will then contact the individuals and advise them they are liable for this additional tax. This would be separate to any normal Super tax assessments.

The individual can then either pay this tax personally or lodge an election with the ATO for their Superannuation Fund to make payment on their behalf.

Consideration for unrealised assets at 30th June 2026

  • The government has acknowledged that there may already be capital growth since acquisition, in certain assets held by superannuation funds.
  • There is special relief which allows SMSFs to make an election to “opt in” to record asset values as at 30 June 2026, to only tax growth after that date, preventing taxation of any pre-existing gains.
  • An important note that this appears to be a blanket election on ALL Assets, which requires a SMSF to reset the Division 296 Cost Base as at 30th June 2026. There is no ability to cherry-pick the assets.
  • To access this relief, SMSFs will need to “opt in” when lodging their 2027 SMSF Annual Return with the ATO.

Planning considerations for Division 296 Tax:

The mechanics and finer detail of this legislation is yet to be released.

Careful tax planning is required. The first year of this tax is based on end-of-year balances as at 30/06/2027, hence giving people time to plan.

Considerations may include:

  • Doing nothing and accepting this additional super tax
  • Super may still be the best tax environment in comparison to other structures.
  • Possibly withdrawing Super to either avoid or reduce the application of this new tax.
  • In so doing possibly triggering capital gains tax and other costs within Superannuation
  • The ability to meet pension and benefit payments going forward
  • Impact on your estate plan
    As the bill is enacted and guidance is supplied by the Australian Government, we will continue to keep you informed with any further updates.

Please reach out to MGI tax accountants and consultants if you have any questions or contact us on (07) 3002 4800.