$3 Million Super Tax (Division 296) from July 2026: Who's Affected & What to Do
From July 1, 2026, super balances over $3 million face an additional 15% tax on earnings. Here's how Division 296 works, who's affected, whether unrealised gains are taxed, and strategies to consider.
What is Division 296?
Division 296 is a new tax on superannuation balances exceeding $3 million. The legislation passed Parliament on March 10, 2026, and takes effect from **July 1, 2026** (first applying to the 2026-27 financial year). Currently, all earnings inside super are taxed at a flat 15% in the accumulation phase (and 0% in the pension phase). Division 296 adds an ADDITIONAL 15% tax on earnings attributable to the portion of your balance above $3 million. The tax is structured in two tiers: - **Earnings on the first $3M:** taxed at 15% (no change) - **Earnings on $3M–$10M:** taxed at 30% (15% existing + 15% Division 296) - **Earnings above $10M:** taxed at 40% (15% existing + 25% Division 296) Both the $3M and $10M thresholds **are indexed to inflation**, addressing earlier concerns about bracket creep. Approximately 80,000-90,000 Australians currently have balances above $3 million — less than 0.5% of super fund members. **Key change from original proposal:** The revised legislation taxes only **realised capital gains**, not unrealised gains. This was the most controversial aspect of the original 2023 proposal and was changed before the bill passed.
How is the tax calculated?
The Division 296 calculation uses this formula: **Step 1: Calculate total earnings** Earnings = (Closing balance + Withdrawals) - (Opening balance + Contributions) This captures realised investment returns. Unrealised gains are NOT included in the revised legislation. **Step 2: Calculate the proportion above $3M** Proportion = (Closing balance - $3,000,000) ÷ Closing balance **Step 3: Calculate Division 296 earnings** Div 296 earnings = Total earnings × Proportion above $3M **Step 4: Apply the additional 15% tax** Tax = Div 296 earnings × 15% (for the $3M-$10M tier) **Example:** John has a super balance of $4.5 million at the start of the year and $5 million at the end. He made $50,000 in contributions and no withdrawals. - Total earnings: ($5M + $0) - ($4.5M + $50,000) = $450,000 - Proportion above $3M: ($5M - $3M) ÷ $5M = 40% - Div 296 earnings: $450,000 × 40% = $180,000 - Additional tax: $180,000 × 15% = **$27,000** This is on top of the regular 15% tax on earnings inside the fund. **CGT cost base reset:** Funds can opt in to reset the CGT cost base of all assets held at June 30, 2026 to market value. This locks out any pre-July 2026 gains from the Division 296 calculation — a critical transitional provision.
Key change: Only realised gains are taxed
The original 2023 proposal would have taxed unrealised capital gains — meaning you'd pay tax on paper gains even without selling. This was the most controversial aspect and drew fierce industry opposition. **The revised legislation (passed March 2026) removed unrealised gains taxation.** Only realised capital gains are now caught. This means: - You won't pay Division 296 tax on shares that rise in value unless you sell them - Property revaluations inside SMSFs don't trigger a Division 296 bill - You have more control over the timing of your Division 296 liability - Carried-forward capital losses can offset capital gains, reducing the earnings amount **CGT discount still applies:** The standard 33.33% CGT discount for complying super funds applies to assets held more than 12 months. This reduces the effective Division 296 impact on long-held assets. **Transitional protection:** Funds can opt to reset the CGT cost base of all assets at June 30, 2026 to market value. Any gains accrued BEFORE July 1, 2026 are excluded from Division 296 calculations. This is a one-time election that must be made by the due date of the 2026-27 tax return. **Remaining concerns:** The Tax Institute has criticised aspects of the legislation's design, particularly Section 296-60 which gives the government power to modify rules via regulation. No High Court challenge has been filed as of March 2026, though constitutional questions have been raised in legal circles.
Who is actually affected?
As of March 2026, approximately 80,000 Australians have super balances above $3 million — about 0.5% of all super fund members. **Profile of affected members:** - Average age: late 50s to 60s - Many are self-employed professionals (doctors, lawyers, business owners) who've maximised contributions over decades - Some are defined benefit scheme members whose balance is calculated differently - Property developers who hold real estate inside SMSFs **You might be caught in future:** - The $3M threshold is NOT indexed. With average super returns of 7-8% per year, a balance of $2M today could exceed $3M within 6-7 years - A couple with $1.5M each in separate funds is NOT affected (it's per individual, not combined) - But a single person with $3.1M in one fund IS affected **Defined benefit members:** If you're in a defined benefit scheme, your 'balance' for Division 296 is calculated using a formula: 16 × annual pension entitlement. So an annual pension of $187,500+ would put you over the $3M threshold. **Check your trajectory:** If your balance is $2M+ and you're more than 5 years from retirement, you should be planning now.
Strategies to consider before July 2026
If your balance is approaching or above $3 million, these strategies may be worth discussing with your financial adviser: **1. Withdraw excess above $3M (if eligible)** If you've met a condition of release (retirement, age 65+), you can withdraw the amount above $3M and invest it outside super. You lose the 15% tax rate on earnings but avoid the additional 15% Division 296 tax. The net benefit depends on your personal tax rate. **2. Restructure between accumulation and pension** Earnings in pension phase are currently tax-free. However, your total super balance (including pension) counts toward the $3M threshold. Moving to pension phase doesn't avoid Division 296, but it does mean the earnings themselves are untaxed — the Division 296 liability is calculated separately. **3. Split contributions with your spouse** If one partner is above $3M and the other is below, contribution splitting can equalise balances over time. You can split up to 85% of concessional contributions with your spouse each year. **4. Review asset allocation** Holding defensive assets (cash, bonds) above $3M reduces volatility in the earnings calculation. Less volatility = more predictable Division 296 liability. However, this trades long-term returns for tax certainty. **5. Consider insurance inside vs outside super** Life insurance and TPD insurance premiums paid inside super reduce your balance. If you're close to $3M, keeping insurance inside super has a dual benefit: protection + balance reduction. **6. Time large transactions** If you're selling property or shares inside your SMSF, the timing of the sale relative to the end of the financial year affects your Division 296 calculation. Professional advice is essential here. **Warning:** Don't make drastic changes based on Division 296 alone. The additional tax is 15% on earnings above $3M — for most affected members, super remains highly tax-effective compared to investing personally at marginal rates of 39% or 47%.
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General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.
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