Division 296 is a new, additional tax proposed by the Labour Government on high superannuation balances. It is designed to apply extra tax on earnings for individuals with total super balances over $3 million.
Originally, this tax would have applied even to unrealised gains — that is, increases in asset values that hadn't been sold. This raised serious concerns across the industry due to fairness and complexity.
After widespread feedback, the government has announced a number of improvements to how Division 296 will work:
Tax applies only to actual (realised) earnings, not unrealised gains
The $3 million threshold will now be indexed to inflation (CPI) in $150,000 increments
A second threshold of $10 million is introduced:
Earnings over $10 million will attract a 40% tax rate (combined)
This threshold will also be CPI-indexed, in $500,000 increments
Start date delayed by 1 year to 1 July 2026
Applies to all super types, including defined benefit pensions
Here’s how earnings will be taxed under the new model:
Up to $3 million: 15% (standard fund tax)
$3 million to $10 million: additional 15% (total 30%)
Over $10 million: additional 25% (total 40%)
The ATO will take the lead in calculating the Division 296 tax. Here's how it will work:
Super funds will report member balances to the ATO as usual
For members over the threshold, the ATO will request the actual earnings from the fund
The fund will calculate each member's realised earnings, using existing methods
The ATO will then calculate the tax amount based on how much of the member’s balance is above each threshold
This process is intended to be as automated and fair as possible, using existing systems.
The exact method is still under consultation, but here’s the general approach simplified:
The ATO identifies if your total super balance (TSB) is over $3 million
Your super fund calculates your actual earnings for the year
The ATO calculates:
What proportion of your balance is over $3 million, and
If applicable, what proportion is over $10 million
The ATO then applies the extra tax only to the relevant portion of your earnings
Sandra has a total superannuation balance of $15 million as at 30 June 2027.
The portion of her balance over $3 million is $12 million, which makes up 80% of her total super.
The amount above $10 million is $5 million, or 33.33% of her overall balance.
Throughout the year, Sandra's super fund earned $500,000 in income and realised capital gains, with this amount attributed to her. The fund has already paid the standard 15% tax on this income. However, Sandra will also be liable for additional Division 296 tax.
The calculation would be:
15% on the part of earnings tied to the $3–$10 million range
Plus 10% on the portion linked to the balance over $10 million
So her Division 296 tax bill would be:
(15% × 80% × $500,000) + (10% × 33.33% × $500,000) = $76,665
These updates will be legislated before the tax starts on 1 July 2026, with further industry consultation expected.
We will continue to monitor developments and keep you updated. In the meantime, if you’d like to discuss how this might impact your super strategy, please don’t hesitate to reach out.