Division 296 is the biggest change to how superannuation is taxed since the Transfer Balance Cap arrived in 2017. It has also been one of the most misreported, because the version that became law in March 2026 is materially different from the bill first proposed in 2023. This guide covers the law as it will actually operate from 1 July 2026.
What Division 296 is
Superannuation earnings are normally taxed at a flat 15% inside the fund. Division 296 adds a second layer of tax for people with very large balances. The two bills implementing it — the Treasury Laws Amendment (Better Targeted Superannuation Concessions) measures — passed Parliament on 10 March 2026 and take effect for the 2026-27 financial year onward.
The two-tier rate structure
The extra tax depends on where your Total Super Balance sits, and it applies only to the slice of earnings attributable to the balance above each threshold:
| Total Super Balance | Division 296 tax on attributable earnings | Total tax on those earnings |
|---|---|---|
| Up to $3 million | None | 15% (standard) |
| $3 million – $10 million | +15% | 30% |
| Over $10 million | +25% | 40% |
Crucially, the higher rates apply only to the proportion of your earnings that corresponds to the balance above each threshold — not to your whole balance, and not to your whole earnings.
What changed from the original bill (the part most explainers get wrong)
Two amendments made before the law passed are the difference between a workable tax and the one critics spent two years fighting. Many articles — and, until this update, our own Budget explainer — still describe the original version:
1. Unrealised gains are no longer taxed. The 2023 draft would have taxed the change in your balance over the year, including paper gains on assets you had not sold — a genuinely novel and controversial idea. That was removed. Division 296 now applies only to realised earnings: actual income (dividends, interest, rent) and realised capital gains, calculated using concepts that already exist in the tax system.
2. The thresholds are now indexed. Both the $3 million and $10 million thresholds index to inflation — in $150,000 and $500,000 increments respectively — so they rise over time instead of quietly capturing more people each year through bracket creep.
How the tax is calculated
The ATO works out the proportion of your earnings that sits above the threshold, then applies the extra rate to that slice. A simplified worked example for a balance entirely within the $3M–$10M band:
- Proportion above $3M = ($5M − $3M) ÷ $5M = 40%
- Earnings subject to Division 296 = 40% × $400,000 = $160,000
- Extra tax = 15% × $160,000 = $24,000
Who is affected
Treasury estimates roughly 80,000 Australians — under half a percent of members — have more than $3 million in super and will be affected in year one. Many are SMSF members holding business real property or large share portfolios. For a typical member with a balance between $50,000 and a few hundred thousand dollars, Division 296 is irrelevant. Because the thresholds are now indexed, the share of people caught is expected to grow far more slowly than under the original un-indexed proposal.
The timeline
- 1 July 2026 — Division 296 commences.
- 30 June 2027 — first balance test. Your Total Super Balance on this date determines whether you are in scope for 2026-27.
- After 1 July 2027 — the ATO issues the first assessments. You then choose to pay personally or have the amount released from your fund.
What to consider if you are near the threshold
There is no need to rush — the first test is more than a year away — but high-balance members are weighing up several moves with their adviser:
- Withdraw and recontribute below the threshold if you are 60+ and have met a condition of release, where it does not breach the contribution caps.
- Equalise balances with a spouse through contribution splitting or recontribution, so two accounts each sit under $3M rather than one above it.
- Review SMSF liquidity — if most of the fund is an illiquid asset such as business real property, plan for how a Division 296 liability would be funded.
- Reconsider further contributions once near the threshold, since extra growth inside super is now taxed more heavily than it once was.
This is general information, not personal advice. Division 296 interacts with the rest of your financial position in complex ways and almost always warrants advice from a licensed financial adviser or SMSF specialist.
Frequently asked questions
When does Division 296 start?
It applies from 1 July 2026. The first balance test is 30 June 2027, and assessments follow after that.
Does it tax unrealised gains?
No — that was removed from the final law. It taxes only realised earnings (actual income and realised capital gains).
What are the rates?
An extra 15% on earnings attributable to the $3M–$10M band (30% total), and an extra 25% above $10M (40% total).
Are the thresholds indexed?
Yes — $3M in $150,000 steps and $10M in $500,000 steps, tracking inflation.
Related guides
- How super is taxed
- Super contribution caps 2025-26 & 2026-27
- Self-managed super funds (SMSFs)
- What changes for your super on 1 July 2026
Independent superannuation research · about the editor ✓ Fact-checked · updated May 2026
Source: APRA & ATO data