From 1 July 2026, a new tax known as Division 296 will apply to individuals with higher superannuation balances.
At a high level, the measure is designed to reduce the tax concessions available to those with larger retirement savings. While the concept sounds simple, the way the tax operates is anything but.
For individuals and couples with significant superannuation, understanding how Division 296 works, and more importantly how it applies to your personal circumstances, is critical.
Division 296 introduces an additional layer of tax on superannuation earnings where an individual’s Total Superannuation Balance exceeds certain thresholds.
There are two key thresholds:
$3 million
$10 million
If your balance exceeds $3 million, a portion of your superannuation earnings may be subject to an additional 15% tax.
If your balance exceeds $10 million, a further 10% tax applies to the proportion of earnings above that level.
Importantly, this is not a tax on your superannuation fund. It is a personal tax liability, assessed to you as the individual and payable either personally, from your superannuation, or a combination of both.
One of the most common misconceptions is that Division 296 is based on movements in your account balance.
It is not.
Instead, earnings are calculated using a specific formula set out in the legislation, starting with the fund’s taxable income and adjusting for items such as contributions and pension income.
This means the calculation:
Includes both accumulation and pension phase earnings.
Includes realised investment gains and income.
Adjusts for contributions, which are not treated as earnings.
Includes earnings on assets supporting pensions, even though they are normally tax-free within the fund.
Once earnings are determined, they are applied proportionally based on how much of your total superannuation balance sits above the relevant thresholds.
There are a small number of limited exclusions from Division 296.
At a high level, these include:
Certain child death benefit pensions, where earnings are not counted for Division 296
Structured settlement amounts, which generally arise from compensation payments rather than investment returns
For most people, these exceptions will not apply.
A simple example
Let’s assume:
Total superannuation balance: $5 million
Annual earnings: $400,000
The portion above $3 million is $2 million, which represents 40% of the total balance.
This means 40% of the earnings are subject to the additional tax.
This is the additional tax payable for that year.
For balances above $10 million, a second calculation applies, allocating a further proportion of earnings to the additional 10% tax.
The key point is that the tax is proportional, not applied to your entire balance or total earnings.
There are several aspects of Division 296 that are not immediately obvious, but are important in practice.
The tax only applies to the portion of earnings attributable to balances above the thresholds. This creates different outcomes depending on how your superannuation is structured and how it performs over time.
Even though income from pension assets is generally tax-free within a super fund, those earnings are still included in the Division 296 calculation.
This is a significant shift and means that moving to pension phase does not remove exposure to this tax.
The calculation is not driven by the change in your account value over the year.
It is based on a modified earnings measure, derived from taxable income and adjusted under the legislation.
This distinction is important, particularly when considering investment strategy, timing of transactions and realised gains.
The legislation provides a transitional capital gains tax cost base adjustment for assets held at 30 June 2026.
This is an important planning consideration, but it is often misunderstood.
It is not a reset.
The original cost base of assets remains unchanged for normal tax purposes. Instead, a separate adjusted cost base is created for Division 296 purposes only.
If elected:
All eligible assets must be included (it is an all or nothing decision)
The election is irrevocable
It applies regardless of whether your balance currently exceeds $3 million
For some clients, this may limit future exposure to Division 296. For others, the benefit may be less clear.
This is an area where tailored advice is essential.
Division 296 also introduces a new layer of complexity in estate planning.
Because the tax is a personal liability, it does not simply disappear on death.
While a member’s superannuation balance is effectively reduced to nil at death, the calculation for the year of death is generally based on the opening balance.
More importantly, the position can continue to evolve after death.
Earnings generated within the fund after death, including realised capital gains or income, may still be taken into account in determining the final Division 296 liability.
This creates several practical issues:
The final tax outcome may not be known at the time of death.
Timing of asset sales and benefit payments can materially affect the result.
There may be a mismatch between who receives the superannuation benefits and who bears responsibility for the tax liability.
Executors are now required to navigate an added layer of uncertainty.
They may need to:
Delay finalising the estate until the tax position is clear.
Retain sufficient assets to meet potential liabilities.
Manage decisions around asset realisation and timing.
For larger or more complex superannuation balances, this is not a trivial task.
It reinforces the importance of having the right people in place, including experienced advisors and, in some cases, professional executors or trustee companies.
Division 296 is not just a tax change. It represents a structural shift in how superannuation is taxed for higher balance individuals.
For some, the impact may be modest.
For others, particularly those with:
Balances approaching or exceeding $3 million
Significant unrealised gains
Complex investment structures; or
Estate planning considerations,
the implications can be material.
Importantly, outcomes will vary significantly depending on your personal circumstances, investment profile and timing of key decisions.
Division 296 sits across tax, superannuation and estate planning, but at its core, it is a superannuation issue.
That means obtaining appropriate financial advice on your superannuation position is critical. A financial advisor can help you understand how the rules apply to your balance, your investment structure and your longer-term retirement strategy, and importantly, identify opportunities to manage or reduce your exposure over time.
From there, a coordinated approach becomes important. Your accountant can assist in understanding the personal tax implications and reporting outcomes, while your estate planning lawyer can help ensure your arrangements, including executor decisions, align with the new rules.
For individuals and couples with larger balances, or where health or estate considerations are becoming more immediate, this is not an area to leave to chance or revisit later.
Taking advice early allows you to make informed decisions with clarity, rather than reacting to outcomes after they occur.
Division 296 introduces complexity, but it also creates an opportunity to revisit and refine your broader strategy.
If your combined superannuation balance is approaching or exceeds $3 million, or if you are nearing retirement or considering your estate planning arrangements, now is the right time to seek advice.
A proactive, well-coordinated approach can help ensure you remain in control of your position and avoid unintended outcomes.
If you would like to understand how Division 296 applies to you, or to review your current strategy, we would be pleased to assist.
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