Division 296 – Super balances over $3 million will see tax rate double to 30% by 2026

The Division 296 legislation has now passed both houses of Parliament and will become law once Royal Assent is granted.

While the final legislation excludes unrealised gains and introduces indexation of the thresholds, the calculations and mechanics of the tax is more complex than originally proposed. It is important to obtain appropriate advice before making any significant changes to your superannuation arrangements.

Below is a summary of what we currently know.

What is Division 296?

Division 296 is a new tax measure that will apply to individuals with a Total Superannuation Balance (TSB) exceeding $3 million.

Under the legislation:

• The tax will apply only to realised earnings attributable to balances above the relevant thresholds.
• Unrealised gains will not be included in the calculation.
• The $3 million threshold will be indexed in line with movements in the transfer balance cap.
• A second threshold of $10 million (also indexed) will apply a higher tax rate on earnings attributable to balances above this level.

When Will the Tax Start? 

The Division 296 tax will commence on 1 July 2026. 

The first assessment will occur based on superannuation balances over $3m as at 30 June 2027. 

How Will The New Tax Work?

Under the current legislation: 

• A 15% additional tax (30% total tax) will apply to Division 296 earnings attributable to super balances between $3 million and $10 million. 

• A further 10% tax (40% total tax) will apply to Division 296 earnings attributable to super balances above $10 million. 

The tax will apply to Division 296 earnings, which are calculated based on realised earnings attributable to balances above the relevant thresholds. Contributions and unrealised gains do not form part of your Division 296 earnings. 

Other Important Changes

• Your Total Superannuation Balance (TSB) will be assessed at both the start and end of each financial year to determine whether Division 296 applies.
• Transitional rules for the 2027 financial year: For the first year of operation, only your balance at 30 June 2027 will be assessed to determine whether you are subject to Division 296.
• SMSF cost base reset: SMSFs may elect to reset the cost base of all investments at 30 June 2026 for Division 296 purposes. This allows only realised gains accruing after this date to be included in the calculation of Division 296 earnings.
  Please note:

• • The election applies to all CGT assets of the fund and cannot be made on an asset-by-asset basis.
  • The reset applies only for Division 296 tax purposes and does not affect the SMSF’s normal income tax calculations.

An actuarial certificate will be required to determine each member’s share of the SMSF’s Division 296 earnings.

• Application on death: Division 296 tax may also apply in the year of a member’s death if their balance exceeded the relevant threshold at the start of the financial year. This rule is expected to apply from the 2028 financial year onwards.

What Should You Be Doing Now, To Prepare For Division 296?

If your superannuation balance is near or above $3 million, we strongly recommend contacting your Morrows adviser as soon as possible. Some initiatives may need to be implemented before 30 June 2026 to ensure you are best positioned under the new rules.

We can provide tailored advice and modelling once the detailed mechanics of Division 296 are finalised, helping you make informed decisions for your superannuation strategy.

Considerations Before Making Any Changes

Before making any changes to your superannuation structure, it is important to undertake appropriate modelling and seek professional advice from a licensed Financial Adviser. 

Factors that may need to be considered include: 

• Tax implications outside superannuation 

• Capital Gains Tax (CGT) implications if assets are realised 

• Estate planning and death benefit tax considerations 

• Your personal financial objectives and circumstances 

Superannuation is still likely to remain one of the most tax-effective structures for retirement savings. Without appropriate modelling and planning, you may not have the information required to make the right decision for your situation. 

How Can We Help You?

If you would like to understand how the Division 296 rules may affect you, please contact your Morrows adviser promptly to discuss your situation.