Division 296 – A Simple Guide for Accountants & SMSF Administrators
The Federal Government has introduced Division 296, a new tax on superannuation earnings for individuals with superannuation balances above $3 million.
The legislation was passed by Parliament on 10 March 2026 and came into effect on 1 July 2026.
This is one of the most significant superannuation changes in over a decade and will affect a small number of high‑balance clients.
- 📌 Who Will Be Affected?
Division 296 applies only to clients whose total super balance (TSB) across all funds exceeds:
- $3 million, and
- potentially $10 million for the higher tier.
Only around 1 in 200 Australians are expected to be impacted.
This includes balances held in SMSFs, retail, and industry funds.
- 📊 How the New Tax Works
From 1 July 2026, earnings on large super balances will be taxed at higher rates:
- 1. For the portion of the balance above $3 million
- Additional 15% tax on earnings
- Effective tax rate becomes 30% (15% fund tax + 15%)
- 2. For the portion above $10 million
- Additional 10% tax on top of the above
- Effective tax rate becomes 40%
- 3m threshold increases in $150,000 increments
- $10m threshold increases in $500,000 increments
- ❗ What’s Not Included Anymore (Important Change)
The original proposal taxed unrealised capital gains.
This has now been removed.
The final law taxes only realised income, which addresses fairness and liquidity concerns—especially for SMSFs holding property.
- 🧮 How the ATO Will Calculate the Tax
The ATO will:
- Check each client’s Total Super Balance at 30 June each year
- Request Division 296 earnings from each super fund
- Assess the additional tax based on the portion above each threshold
Clients can pay the tax:
- directly from their SMSF or
- from personal cash (similar to Division 293 arrangements).
- 📆 Timing & Transitional Rules
- Division 296 starts: 1 July 2026
- First assessments: 2026–27 financial year
- Transitional year: TSB for the first assessment is taken at 30 June 2027 only
(giving clients time to restructure if needed)
- 💼 Practical Implications for Accountants & SMSF Admin Firms
- 1. Review Clients with High Balances
Identify clients whose TSB may exceed $3m by 30 June 2027.
- 2. Discuss Contribution + Withdrawal Strategies
Some clients may want to reduce large balances before 30 June 2027.
- 3. Consider Asset Location Strategies
Assets may be shifted between:
- SMSF
- personal names
- family trusts
- corporate entities
…depending on tax outcomes.
- 4. Prepare for ATO Reporting Requirements
Funds will need systems ready to report Division 296 earnings when requested.
- 5. Update Client Advice & Engagement Letters
Ensure communication covers:
- Division 296 thresholds
- Potential impacts
- Additional tax obligations
- 📝 Simple Example (Client-Friendly)
Client Balance: $5.5m at 30 June 2027
Income for 2026–27: $300,000
- First $3m → taxed at normal SMSF rate (15%)
- Next $2.5m → proportionally taxed at extra 15%
This results in Division 296 tax applying only to the earnings on the excess $2.5m.
- 🎯 Key Takeaways for Your Clients
- The new tax only applies to very large super balances
- It starts 1 July 2026
- No tax on unrealised gains
- Thresholds are indexed
- Only a small number of Australians will be affected
- Planning before 30 June 2027 is important
For information, please get in touch with Shiv Parihar on shivparihar@manageyoursuper.com.au
General Advice Disclaimer – The information provided is general in nature and has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information, you should consider whether it is appropriate to your circumstances and seek independent financial, tax or legal advice where necessary.
Any examples or scenarios are provided for illustrative purposes only and do not constitute advice. While all care has been taken in preparing this information, no warranty is given as to the accuracy or completeness of the information, and no liability is accepted for any errors or omissions.
Superannuation and tax legislation is subject to change, and you should confirm the current rules with a qualified professional before making decisions.