Division 296 Tax: What It Means for Large Superannuation Balances
From the 2026-27 financial year, individuals with large superannuation balances may be subject to a new layer of tax known as Division 296 (Div 296) tax.
The measure introduces additional tax on certain earnings attributed to superannuation balances above specific thresholds. If you have substantial superannuation savings, it’s important to understand how the new rules may affect you and your retirement planning strategy.
What Is Division 296 Tax?
Division 296 tax is a separate tax that applies to individuals with large total superannuation balances (TSBs).
The Australian Taxation Office (ATO) assesses and collects Division 296 tax separately from:
- Personal income tax
- Tax paid within a superannuation fund
- Existing taxes on superannuation earnings
The ATO will issue an assessment directly to affected individuals, and payment is generally due within 84 days of receiving the notice.
Importantly, Div 296 tax applies in addition to the tax already paid on earnings within superannuation funds.
Who Will Be Affected?
From the 2026-27 income year, the following thresholds apply:
| Total Superannuation Balance | Division 296 Tax Treatment |
|---|---|
| Up to $3 million | No Div 296 tax |
| Above $3 million | 15% tax on earnings attributable to balances above $3 million |
| Above $10 million | Additional 10% tax on earnings attributable to balances above $10 million |
These thresholds are indexed to the Consumer Price Index (CPI).
Division 296 Applies in Both Accumulation and Retirement Phase
Unlike existing tax arrangements that primarily affect superannuation funds during the accumulation phase, Div 296 tax can apply to balances held in both:
- Accumulation accounts
- Retirement phase interests
As a result, retirees with large superannuation balances may also be impacted.
How Is Your Total Superannuation Balance Calculated?
Your total superannuation balance generally includes:
- APRA-regulated super funds
- Self-managed super funds (SMSFs)
- Eligible public sector superannuation schemes
Foreign superannuation interests are generally excluded.
For the first year of operation, the ATO will assess eligibility based on your total superannuation balance at 30 June 2027.
Who Is Excluded?
Certain individuals may be excluded from Division 296 tax, including:
- Child recipients of superannuation income streams
- Individuals who have received structured settlement contributions under the relevant provisions
Eligibility exceptions can vary depending on individual circumstances.
How Is Division 296 Tax Calculated?
The calculation involves three broad steps.
1. The Super Fund Calculates Earnings
The superannuation fund determines its Div 296 fund earnings for the financial year.
2. Earnings Are Attributed to Members
The fund allocates a share of those earnings to each relevant member and reports the information to the ATO.
3. The ATO Calculates the Tax Liability
The ATO then applies a formula to determine:
- The proportion of your balance above the relevant threshold
- The earnings attributable to that excess amount
- The amount of Div 296 tax payable
Special Rules for SMSFs
The calculation process differs for small superannuation funds, including SMSFs.
Rather than relying on trustee allocations, SMSFs generally use a prescribed formula based on the average value of a member’s interest throughout the year.
This means SMSF trustees may face additional reporting and record-keeping requirements under the new rules.
How Can You Pay Division 296 Tax?
If you receive a Div 296 tax assessment, you generally have several payment options.
You may:
- Pay the tax personally
- Elect to release funds from your superannuation
- Use a combination of both methods
If you choose to release funds from your superannuation to pay the tax, you generally must lodge your release election within 60 days of receiving your assessment notice.
For defined benefit interests, the ATO generally defers payment of the tax until your benefits become payable.
What Should Individuals With Large Super Balances Do Now?
If you have a significant superannuation balance, now is a good time to review your position, even though the ATO will not issue the first assessments until after it receives earnings information for the 2026-27 financial year.
Areas to consider include:
- Your current total superannuation balance
- Whether you may exceed the $3 million threshold
- The potential impact on your retirement strategy
- Whether your SMSF investment and contribution strategy remains appropriate
- Future estate planning considerations
By understanding the rules early, you can avoid surprises when the ATO begins issuing assessments.
Common Questions About Division 296 Tax
Does Division 296 Tax Replace Existing Super Taxes?
No. Division 296 tax is additional to the tax already paid within superannuation funds.
Does It Only Apply to SMSFs?
No. The tax applies across superannuation structures, including both APRA-regulated funds and SMSFs.
Who Will Need to Pay Division 296 Tax?
Not everyone with superannuation will be affected. Division 296 tax only applies to individuals whose total superannuation balance exceeds the relevant thresholds.
Can the Tax Be Paid From Super?
Yes. Eligible individuals can generally elect to release money from their superannuation to pay the assessment.
