On 11 March 2026, the proposed Division 296 superannuation tax legislation passed both houses of Parliament without further amendments. The measure is now scheduled to commence from 1 July 2026, which means SMSF trustees and members should begin approaching the rules as a confirmed part of the Australian superannuation system rather than a proposal still under discussion.
Division 296 introduces an additional tax that may apply to individuals whose Total Superannuation Balance exceeds $3 million. Often referred to as the $3 million super tax, the measure applies to earnings attributable to the portion of a member’s superannuation balance above that threshold.
Although the tax is assessed to the individual rather than the superannuation fund itself, SMSF trustees will still encounter the administrative implications through reporting requirements, valuation processes and potential release authorities.
Understanding how the legislation works allows trustees and members to prepare early and maintain confidence that their fund remains well managed as the rules take effect.
What Is Division 296 Tax?
Division 296 is a personal tax applied to individuals with higher superannuation balances. It operates in a similar way to Division 293, which introduced additional tax on concessional contributions for higher income earners.
Under Division 296, individuals whose Total Superannuation Balance exceeds $3 million at the end of a financial year may be liable for additional tax on the earnings attributable to the portion of their balance above that threshold.
The tax is assessed to the individual. Members may choose to pay the liability personally or elect to release funds from their superannuation to meet the obligation.
Total Superannuation Balance includes all super interests held by an individual, including balances in SMSFs, retail funds, industry funds and defined benefit arrangements. Amounts held in pension phase are also included.
What Changed When the Legislation Passed on 11 March 2026?
The version of the legislation passed in March confirmed several important adjustments that had previously been the subject of consultation and industry feedback.
One of the most significant developments relates to how superannuation earnings are calculated. Earlier drafts included unrealised capital gains, which raised concerns across the superannuation sector. The final legislation removed unrealised gains from the calculation and instead aligns the approach more closely with traditional tax principles.
The legislation passed on 11 March 2026 confirms that:
- unrealised gains are not included when calculating Division 296 earnings
- capital losses can be carried forward and applied to reduce earnings
- the balance thresholds may be indexed over time
- SMSF trustees may elect to reset the cost base of fund assets to market value as at 30 June 2026
- future calculations may use the higher of the opening or closing balance in a financial year
- Division 296 may apply in the year of a member’s death
- SMSFs may require actuarial certification in certain circumstances where this has not previously been required
These changes resolved several technical concerns raised during consultation with the superannuation industry.
Division 296 Balance Thresholds
Division 296 introduces two balance thresholds that determine how the additional tax applies.
For the portion of an individual’s superannuation balance between $3 million and $10 million, an additional 15 percent tax may apply to the earnings attributable to that portion.
For balances above $10 million, a further 10 percent tax may apply to earnings attributable to that higher tier.
Importantly, the calculation applies only to the portion of the super balance above the relevant threshold rather than the entire superannuation balance.
Superannuation Fund Earnings Under Division 296
Earlier drafts of the legislation proposed including unrealised capital gains when calculating superannuation earnings. This raised concerns for funds that hold long-term assets such as property.
The final legislation removes unrealised gains from the calculation. Earnings for Division 296 purposes will reflect realised gains and losses in a manner that more closely aligns with traditional tax calculations.
This approach means asset value movements alone do not trigger Division 296 tax unless a gain has been realised.
Capital Gains Tax Adjustments for SMSFs
The legislation allows SMSF trustees to elect to reset the cost base of all fund assets to market value as at 30 June 2026 for Division 296 calculation purposes.
This adjustment helps ensure that capital growth that occurred before the introduction of the rules is not captured in the Division 296 calculation.
Several practical points are important for trustees.
- The reset applies to all assets held by the SMSF rather than individual assets selected by trustees.
- The adjustment applies only for the purposes of the Division 296 calculation and does not change the cost base used in the SMSF’s own tax return.
- The election can be made even where the SMSF does not currently have members whose balances exceed the $3 million threshold.
Indexation and Future Threshold Movement
Public commentary accompanying the legislation indicates that the thresholds may be subject to indexation over time.
Indexation helps maintain the policy focus on higher superannuation balances by allowing the thresholds to move gradually in response to inflation. Trustees and members approaching the threshold should continue monitoring balances even where indexation applies.
Why SMSF Trustees Should Remain Aware
Although Division 296 is assessed to individuals, SMSF trustees will still encounter the practical effects of the rules through administration and reporting.
Liquidity and Cash Flow
If a member becomes liable for Division 296 tax and elects to pay the liability using funds released from superannuation, the SMSF may be required to process a release authority.
Funds holding illiquid assets such as property or private investments may need to consider how liquidity could be managed if such a request arises.
Reporting Accuracy
Division 296 calculations rely on reported balances and earnings data.
Maintaining reliable financial records, appropriate asset valuations and timely reporting helps reduce the likelihood of reassessments or administrative complexity.
Example of How Division 296 May Apply
Consider an individual with a Total Superannuation Balance of $4 million.
The portion of the balance above the $3 million threshold is $1 million, which represents 25 percent of the total balance.
If the individual’s superannuation earnings for the year are $200,000, then 25 percent of those earnings, or $50,000, may be attributed to the portion of the balance above the threshold.
The additional Division 296 tax would then apply to that attributable amount.
This example is simplified and does not account for every legislative adjustment or individual circumstance.
Key Takeaway
Division 296 introduces an additional tax for individuals with higher superannuation balances and is scheduled to commence from 1 July 2026, following the passage of legislation on 11 March 2026.
While the tax liability is assessed personally, SMSF trustees remain connected to the operation of the rules through reporting obligations, valuation processes and potential release authorities.
For most trustees, the practical focus remains on maintaining strong compliance practices, accurate reporting and clear financial records so that any future obligations can be managed smoothly.
What This Means for Clients Now
Although Division 296 does not commence until 1 July 2026, the passage of legislation on 11 March 2026 means the rules are now settled and trustees can begin considering the practical implications with greater clarity.
For many individuals, the reform will not result in immediate changes to their superannuation strategy. The thresholds remain relatively high and the tax applies only to earnings attributable to balances above those levels.
For individuals approaching or exceeding the $3 million Total Superannuation Balance threshold, the focus is often less about reacting to the reform and more about understanding how the rules interact with existing superannuation structures.
Some trustees may wish to consider:
- how their Total Superannuation Balance currently sits relative to the thresholds
- whether their SMSF asset valuations and reporting processes remain robust
- how the fund’s liquidity profile may respond if a release authority is issued in future years
- whether the 30 June 2026 cost base reset election may be relevant to their circumstances
These considerations are not about immediate structural change. They are about ensuring trustees and members understand how the new framework may operate over time.
Superannuation remains a long-term investment structure and the introduction of Division 296 does not alter the broader role super plays in retirement planning. If you would like to understand how these changes may affect you, review our Super page or get in touch with our team.
Frequently Asked Questions About Division 296 Tax:
What is Division 296 tax?
Division 296 is an additional tax that will apply to individuals whose Total Superannuation Balance exceeds $3 million. The tax applies to earnings attributable to the portion of superannuation balances above that threshold.
When does Division 296 start?
Division 296 legislation passed Parliament on 11 March 2026 and is scheduled to commence from 1 July 2026.
Does Division 296 apply to SMSFs or individuals?
Division 296 is assessed to the individual member rather than the superannuation fund. Members may pay the liability personally or elect to release funds from their superannuation.
Are unrealised capital gains included in the calculation?
No. Earlier drafts proposed including unrealised gains. The final legislation removed unrealised gains, meaning only realised gains are included when calculating earnings for Division 296 purposes.
How is the $3 million threshold calculated?
The threshold is based on an individual’s Total Superannuation Balance, which includes all super interests across all funds.
Can SMSF trustees reset asset values before the rules begin?
Yes. SMSF trustees may elect to reset the cost base of fund assets to market value at 30 June 2026 for Division 296 calculation purposes.
Will the $3 million threshold increase over time?
Government commentary indicates the threshold may be subject to indexation over time.