In this guide
If the Albanese Government has their way, a new tax will be charged on investment growth that occurs next financial year in super balances above $3 million (Division 296 tax).
Individuals whose total super balance exceeds $3 million under the rules applying for 2026–27 will be among the first to receive an assessment.
The government recognises that the tax rates on super earnings of 15% in the accumulation phase and 0% in the retirement phase provide a significant concession for most taxpayers. Applying additional tax on the growth of larger balances is intended to better target that concession.
Let our explainer and calculator cut through the jargon.
How has the proposal changed?
In its original form, Division 296 proposed an additional tax on investment earnings for super balances above $3 million. The $3 million threshold was not to be indexed, and the definition of earnings captured unrealised capital gains.
Criticism of the proposed legislation focused on the lack of future indexation of the cap, which would capture the balances of more Australians over time, and on the taxation of unrealised gains, which was unprecedented in tax law.
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In October 2025, the Treasurer Jim Chalmers announced changes to the proposal addressing both areas.
Under the new proposal, a second $10 million threshold where a higher tax rate applies is to be introduced. Both the $3 million and $10 million threshold will be indexed.
The original proposed law used the increase in total superannuation balance (TSB) during the financial year to determine estimated earnings, which captures the increase in value of assets that have not been sold (unrealised gains). In the new version, super funds will instead be required to report realised earnings for affected members. Further consultation with the industry will determine approved methods funds can use to estimate the realised earnings that should be attributed to each member.
Implementation is to be delayed by 12 months from the original proposal, with the first application of the tax taking place for earnings accrued during the 2026–27 financial year.
A summary of the old and new proposal is shown in the table below.
| Previously announced measure | New measure |
|---|---|
| Earnings calculated based on changes in TSB, adjusted for withdrawals and contributions. | Earnings calculated based on the superannuation funds’ realised earnings attributed to members with a TSB above the threshold. Fund earnings will be based on its taxable income, aligned with existing tax concepts. |
| $3 million threshold not indexed. | $3 million threshold indexed to CPI. $10 million threshold indexed to CPI. |
| Additional tax of 15% applied to the proportion of earnings corresponding to TSBs above $3 million | Two tiered approach applying: 15% additional tax on the proportion of earnings corresponding to the TSB between $3 million and $10 million 25% additional tax on the proportion of earnings corresponding to TSBs above $10 million |
| Start date 1 July 2025 (focusing on TSB at 30 June 2026) | Start date 1 July 2026 (focusing on TSB at 30 June 2027) |
Total tax on investment earnings
Since the usual tax on earnings is 15% in the accumulation phase, the application of Division 296 brings the total tax rate to 30% for the proportion of earnings corresponding to the TSB between $3 million and $10 million (15% + 15%), and 40% for the proportion of earnings corresponding to the TSB above $10 million (15% + 25%) for assets supporting accumulation phase interests.
However, this is not the end of the story. Some super funds in Australia for government employees are ‘untaxed’, meaning the usual 15% tax on earnings does not apply.
In addition, assets supporting retirement phase interests (pensions) attract tax-free investment earnings.
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Find out moreWhen Division 296 is applied to the earnings of untaxed funds and retirement phase interests, the total tax is the Division 296 rate alone.
Who does it apply to?
Division 296 tax applies to the taxable super earnings of individuals whose total superannuation balance (TSB) exceeds $3 million based on the greater of their balance at the start and end of the financial year (subject to a transitional rule for 2026–27).
Under the exposure draft, withdrawing super during the year will not necessarily prevent Division 296 tax from applying, as balances at both the start and end of the year are taken into account.
The threshold applies to individuals, so couples can still have up to $6 million in super and not be liable for additional tax. Individual application also means the total value of a self-managed super fund (SMSF) may be above $3 million but if no members have an individual TSB above the threshold then no Division 296 applies.
How is it calculated?
Division 296 tax applies at the rate of 15% to the earnings attributed to the portion of your balance that is above $3 million.
A further 10% tax is imposed on earnings attributed to the portion of your balance that is above $10 million, bringing total Division 296 tax on this portion to 25%.
This means if your balance is only a little over the threshold, a correspondingly small proportion of your earnings will attract extra tax.
To calculate the proportions, the below formulae are used:
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The result can be expressed as a percentage.
For the first year that Division 296 applies (2026–27), a transitional rule will apply when working out how much of a member’s super is above the $3 million and $10 million thresholds.
Under this transitional rule, the taxable proportion will be based solely on the member’s total super balance at 30 June 2027. From later years, balances at both the start and end of the financial year will be taken into account.
What if my investment return is negative?
A negative return (fall in value) can occur in your super balance for the year if the value of your investments is lower at the end of the year than at the start.
In this scenario, your fund still has taxable income from interest earned on cash, dividends received from shares, rent on property, realised capital gains, etc.
It is the realised income attributed to you that will attract Division 296 tax, so you will still have tax to pay even in years when your balance has decreased.
Division 296 calculator
We know wading through the numbers alone isn’t everyone’s idea of a great time, so we’ve put together a simple calculator to estimate your Division 296 tax liability for 2026–27.
*including dividends, rent, interest, realised capital gains, etc.
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Find out moreCollection of the tax
Those who have been liable for Division 293 tax in the past will be familiar with the assessment and payment process that is being proposed. The ATO will send assessments to affected individuals, who may then choose to release the tax from their super or pay the liability from their own resources outside super.
In a small concession, the interest rate applied to late payments is four percentage points lower than the rate that applies to most other overdue tax payments.
The released explanatory material states that the lower interest rate should be closer to market rates and is intended to avoid penalising people in the “very rare circumstances” that they do not have available funds within or outside super with which to pay the tax liability. This could apply to those who have SMSFs that have most of their assets tied up in illiquid investments such as property.
Special rules and concessions
People who have received a structured settlement contribution, who died before the last day of the income year, or who are child recipients of death benefit pensions are not subject to the Divison 296.
Earnings from constitutionally protected (untaxed) funds for State higher level office holders, along with earnings from the super of sitting Justices of the High Court appointed before 1 July 2025 and earnings from non-complying funds are exempt from tax. The balances of these accounts will however be included when assessing whether the $3 million cap has been reached, so tax can be applied to the earnings of other superannuation interests held by the same individual.
Future indexation
The $3 million threshold will be indexed to CPI in increments of $150,000 and the $10 million threshold will be indexed to CPI in increments of $500,000.
If CPI is sufficient enough to trigger indexation, the first increase will be to $3,150,000 and $10,500,000 respectively.
The impact on retirees
Retirees can currently transfer up to $2 million (the transfer balance cap) from their accumulation accounts into retirement phase pension accounts. Investment earnings on retirement phase accounts are tax free within the fund but are not exempt from Division 296 tax.
The value retirement phase accounts is included in your TSB and counts towards the $3 million threshold for calculation of Division 296 tax. Based on the current detail available, it also appears that investment earnings on retirement phase accounts will be included in the taxable earnings to which Division 296 tax will be applied.
Retirees who have a total balance (including retirement phase interests and accumulation phase interests) above $3 million will therefore be affected by Division 296 tax in the same way as anyone else.
The legislation clarifies that a change to the definition of TSB is required that will have it capture the ‘withdrawal value’ of benefits. We will know more about this when regulations are finalised, but it will mean that non-account-based pensions (including defined benefit pensions) will need to be revalued annually.
The change is needed because the value of these pensions for TSB purposes is currently determined only when the pension commences and does not change. This renders the current TSB definition unsuitable for the purposes of Division 296, which requires that the annual change in value of accounts is known, to determine taxable earnings.
As the change in definition will apply across the board, not just to Division 296 tax, it will have broader consequences for other measures that refer to the TSB such as concessional contribution caps and eligibility to use carry-forward concessional contributions.
How earnings are allocated between members
Although Division 296 tax is assessed to individuals, super funds must first calculate earnings at the fund level and then allocate those earnings between members.
For SMSFs, Treasury has indicated that regulations will require the use of a special actuarial certificate to allocate earnings, even for some funds that are entirely in accumulation phase.
Treasury has also indicated that SMSFs with assets notionally allocated to specific members will still be required to apply a common allocation method, effectively ignoring those specific allocations.
Large APRA-regulated funds will instead be required to allocate earnings between members on a fair and reasonable basis, consistent with their existing systems.
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