Division 296 Superannuation Tax is now law
Introduction
The Division 296 superannuation tax (also known as the Better Targeted Superannuation Concessions Tax) is a significant reform targeting high-balance superannuation accounts in Australia. Following its passage through Parliament on 10 March 2026, it is meant to represent a shift toward ‘better-targeted’ concessions for those with ‘substantial’ retirement savings.
What is Division 296?
Division 296 is an additional tax imposed on the investment earnings of individuals whose Total Superannuation Balance (‘TSB’) exceeds $3 million at the end of the Australian financial year of 30 June. It is a personal tax assessed to the individual, not the super fund itself, though you can elect to pay it using your super fund's assets. It is separate from and additional to the existing taxes paid by super funds on their earnings.
Payment Options
Personal Funds:
You can pay the tax directly using your own resources outside of the superannuation system (e.g., cash or personal bank accounts). This method allows you to preserve your superannuation balance.
Superannuation Assets:
You can elect to have the tax paid from one or more of your superannuation accounts.
Release Authority:
If you choose this option, you must notify the ATO, which will then issue a ‘release authority’ to your fund to pay the amount on your behalf.
Access Rules:
Under this arrangement, you do not need to satisfy usual "conditions of release" (such as being 60 and retired) to access these funds for the specific purpose of paying this tax.
Combination:
It is also possible to use a combination of both methods, paying part from personal funds and part via a release from super.
Key Points for Investors
Commencement Date:
The tax officially starts on 1 July 2026. The first year (2026–27) uses a transitional rule: your status is determined solely by your balance on 30 June 2027. From the 2027–28 year onwards, the ATO will look at the higher of your opening or closing balance to determine if you hit the threshold.
Tiered Tax Rates:
Balances $3 million to $10 million: An additional 15% tax on earnings attributable to the portion above $3 million (bringing the total effective rate to 30%).
Balances over $10 million: An additional 25% tax on earnings for the portion above $10 million (bringing the total effective rate to 40%).
Realised Earnings Only: In a major win for investors, the final law excludes unrealised ‘paper’ gains. You are only taxed on actual income and actual realised capital gains (e.g. dividends, interest, rent, and profits from sold assets).
Threshold Indexation: Unlike earlier proposals, both the $3 million and $10 million thresholds will be indexed to inflation in increments of $150,000 and $500,000 respectively to prevent ‘bracket creep’.
The ‘One-Time’ Cost Base Election: SMSFs can ‘opt-in’ to a special transitional relief that resets the cost base of assets to their market value as of 30 June 2026. This ensures that growth built up before the tax started isn't captured in future Division 296 calculations when the asset is eventually sold.
Impact on Death Benefits: On the death of a member, their TSB is set to nil for Division 296 purposes, meaning no ongoing liability for the deceased. However, if a death benefit is paid to a surviving spouse whose balance then exceeds $3 million, they may become liable for the tax on future earnings.
Strategic Considerations
Asset Allocation: Investors with large balances may need to reconsider whether high-growth or illiquid assets (for example commercial property) are still best held within super versus alternative structures like family trusts.
Liquidity Management: Since this is a personal tax, ensure you have a plan to fund the liability either through personal cash flow or by ensuring your super fund has enough liquid assets to meet the taxation payment.
Professional Advice: Given the potential complexity of calculating ‘proportionate earnings’ and the finality of the cost-base election, consulting with a tax professional before the June 2026 deadline is highly recommended.
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Disclaimer
This content of this blog post is not accounting advice. The information provided is opinion and for general purposes only and is not a substitute for personalised accounting advice.