Last updated: May 2026
From 1 July 2026, if your total super balance exceeds $3 million, you’ll pay additional tax on a portion of your super earnings. This is Division 296, and after three years of debate, amendments, and policy rewrites, it’s now law. Parliament passed the final legislation in March 2026.
Division 296 isn’t the end of super as a wealth-building tool. For the vast majority of Australians, super remains the most tax-effective environment for long-term investing. But for high-balance members, the maths has changed. The effective tax rate on earnings inside super is now higher than it was, and if you haven’t modelled the impact on your specific situation, you’re making structural decisions in the dark.
We’ve already seen two reactions to this, and both are wrong. The first is panic: pulling money out of super in a knee-jerk reaction without modelling the actual cost. The second is inertia: assuming it doesn’t affect you, or that someone else will sort it out. Both are expensive. The right response is to price it, plan around it, and move.
This guide covers who’s affected, how the tax is calculated, what changed from the original proposal, and what you should be doing before 30 June 2026 and beyond.
Who’s actually affected
Division 296 applies to individuals, not funds. If your total super balance (TSB) across all funds, including SMSFs, APRA-regulated funds, and defined benefit schemes, exceeds $3 million at the relevant measurement date, you’ll receive a Division 296 assessment. The tax is assessed on you personally, not your super fund.
If you’re in a couple, each person has their own $3 million threshold. A household can have up to $6 million in super before either partner is affected. This matters, because it means the way balances are split between spouses isn’t just a retirement planning question anymore. It’s a tax question.
In the first year (2026–27), your TSB at 30 June 2027 alone determines whether you’re above the threshold. This is a transitional rule. From 2027–28 onwards, the ATO uses the higher of your TSB at the start or end of the financial year. That’s an important distinction: it limits the ability to withdraw super mid-year to duck below $3 million and then top it back up.
The government estimates that a small proportion of Australians will be affected. But if you’re a high-income earner who’s been maximising super contributions for years, or you’ve had a liquidity event that pushed a lump sum into super, $3 million isn’t as far away as it sounds. And because the threshold is per individual, it disproportionately impacts single-income households or couples with unbalanced super. Sources: ATO Division 296 guidance and Grant Thornton Division 296 update.
How the tax works
Division 296 adds two tiers of additional tax on super earnings:
| Threshold | Additional tax rate | Effective total rate on earnings |
| $3 million to $10 million | +15% | 30% (existing 15% + additional 15%) |
| Above $10 million | +25% | 40% (existing 15% + additional 25%) |
The tax only applies to the proportion of your earnings that relates to the balance above each threshold. Not your total earnings. Not your total balance. The slice above $3 million.
The formula looks like this: take your total super earnings for the year, multiply by the proportion of your balance above the threshold, then apply the additional tax rate. If your balance is $3.2 million and your earnings are $100,000, only the earnings attributable to the $200,000 above $3 million are taxed additionally. That proportion is 6.25% of your balance, so the additional tax is $100,000 x 6.25% x 15% = $937. Not nothing, but not the catastrophe some commentary has suggested.
Both thresholds are indexed to CPI. The $3 million threshold moves in $150,000 increments and the $10 million threshold in $500,000 increments. This was a critical improvement from the original proposal, which had a flat, unindexed $3 million threshold that would have captured more people every year through bracket creep alone.
The numbers: two worked examples
Example 1: Just above the threshold
Marcus has a total super balance of $3.4 million across an industry fund and an SMSF. His funds report combined realised earnings of $175,000 for the 2026–27 year.
The proportion of his balance above $3 million: $400,000 / $3,400,000 = 11.76%. His Division 296 taxable amount: $175,000 x 11.76% = $20,580. Additional tax at 15%: $3,087.
Marcus’s total Division 296 bill: $3,087. On $175,000 of earnings and a $3.4 million balance, that’s an effective additional tax rate of about 1.8% on total earnings. Super is still concessional. It’s still a good deal. But it’s $3,087 that didn’t exist before, and over 10 years of similar earnings, that compounds to a meaningful number.
Example 2: Well above the threshold
Sarah has a total super balance of $4.5 million, all in an SMSF. Her fund reports $250,000 in realised earnings for the year.
The proportion above $3 million: $1,500,000 / $4,500,000 = 33.3%. Division 296 taxable amount: $250,000 x 33.3% = $83,333. Additional tax at 15%: $12,500.
Sarah’s Division 296 bill: $12,500. That’s an effective additional tax rate of 5% on total earnings. Still below what she’d pay outside super at her marginal rate, but the gap has narrowed considerably. For Sarah, it’s now worth modelling whether every dollar above a certain level is better off inside super or deployed through a different structure.
What changed from the original proposal
The legislation that passed is significantly different from what was first announced in February 2023. If you formed your opinion about Division 296 based on the original announcement, it’s worth updating your view. Three changes matter most:
No tax on unrealised gains. This was the single biggest concern with the original proposal. It would have taxed paper gains on assets you hadn’t sold, creating a potential tax liability with no corresponding cash to pay it. That’s gone. The final version taxes realised earnings only, calculated at the fund level using normal tax principles including CGT discounting. This is a substantial improvement, especially for SMSFs holding property or concentrated share positions long-term.
Indexed thresholds. Both the $3 million and $10 million thresholds will increase with inflation. Under the original proposal, a flat $3 million threshold would have captured an ever-growing number of Australians through natural balance growth and indexation of contribution caps. The indexed threshold is a genuine structural improvement.
Cost-base reset for SMSFs. SMSFs can elect to reset the cost base of all their assets to market value at 30 June 2026 for Division 296 purposes. This means capital gains accumulated before the tax starts won’t be caught in the Division 296 calculation when those assets are eventually sold. But it’s an all-or-nothing election for the entire fund (you can’t cherry-pick assets), it only applies for Division 296 purposes (normal fund-level CGT is unaffected), and you must opt in before the due date for your 2026–27 return.
The cost-base reset: the biggest planning decision for SMSF trustees
This single decision could save SMSF members hundreds of thousands of dollars in future Division 296 tax, or cost them money if they get it wrong. It deserves its own section because the window to act is narrow and the consequences are permanent.
When you sell an asset inside your SMSF after 1 July 2026, the realised capital gain becomes part of your Division 296 earnings calculation. Without the cost-base reset, that gain is measured from the original purchase price. With the reset, it’s measured from the market value at 30 June 2026. The difference can be enormous for long-held assets.
A worked example: SMSF property
Say your SMSF holds a commercial property purchased in 2012 for $1 million. The property is worth $4 million at 30 June 2026. That’s $3 million in capital growth built up over 14 years.
Without the cost-base reset: if you sell the property in, say, 2030 for $5 million, the capital gain for Division 296 purposes is $4 million ($5 million minus the original $1 million cost base). The Division 296 tax applies to the proportion of that gain attributable to your balance above $3 million. Depending on your total balance and other earnings, the additional tax on that gain alone could easily exceed $100,000.
With the cost-base reset: the Division 296 cost base resets to $4 million (the market value at 30 June 2026). When you sell for $5 million in 2030, the Division 296 gain is only $1 million, not $4 million. The pre-July 2026 growth is completely excluded from the Division 296 calculation. The tax saving on that single transaction can be six figures.
And importantly, the reset only applies for Division 296 purposes. Your SMSF still calculates its normal fund-level capital gains tax using the original $1 million cost base. So the fund’s own tax position doesn’t change. Your fund effectively maintains two sets of cost-base records from this point: one for normal CGT, one for Division 296.
The trap: assets in a loss position
The election is all-or-nothing across the entire fund. You can’t cherry-pick which assets get the reset. If your SMSF also holds shares that were bought at $500,000 but are worth $350,000 at 30 June 2026, the reset drops their Division 296 cost base to $350,000. If those shares later recover and you sell them for $600,000, the Division 296 gain is $250,000 instead of $100,000. You’ve actually created a bigger Division 296 liability on that asset by opting in.
For most SMSFs with significant long-held growth assets (property, concentrated share positions), the reset is a clear win because the gains on those assets dwarf any losses elsewhere. But the decision requires modelling the entire portfolio, not just the biggest asset. Run the numbers on every holding before you elect.
Why this matters even if your balance isn’t above $3 million today
The cost base, once set, is the cost base forever (or until you sell the asset). If your SMSF balance is $2.5 million today but you’re still contributing and your investments are growing, you could cross the $3 million threshold in a few years. When you eventually sell assets above that threshold, the Division 296 gain will be calculated using whatever cost base was in place.
If you didn’t reset at 30 June 2026 because you thought the threshold didn’t apply to you yet, the full historical gain from the original purchase price gets captured. That’s pre-2026 growth you could have excluded permanently with a simple election. The cost of missing this isn’t visible today. It shows up years later as a higher-than-necessary tax bill that can’t be unwound.
The deadline and the mechanics
The election must be lodged with the ATO via an approved form by the due date of your SMSF’s 2026–27 income tax return. It’s irrevocable: once made, it can’t be reversed. You’ll need to obtain and retain market valuations for every asset in the fund at 30 June 2026, and keep those records for at least five years.
For property, this means getting a formal valuation. For listed shares, it’s straightforward (market price at 30 June). For unlisted assets, private company interests, or units in unlisted trusts, the valuation methodology matters and should be defensible. Getting this done properly before 30 June 2026 is the priority.
What happens in a bad year
If your super earnings are negative in a given year (your balance went backwards), your Division 296 assessment for that year is nil. You won’t get a refund for the tax you paid in good years, and you can’t carry forward negative earnings to offset future years.
This is one of the less generous aspects of the design. In a year where markets fall and your balance drops, you get no Division 296 benefit. But in a recovery year where gains bounce back, you’re taxed on the full recovery. Over a long period with volatile markets, this asymmetry can mean you pay more Division 296 tax in aggregate than the headline rate suggests. It’s not a reason to leave super, but it’s a reason to model realistic scenarios rather than assuming smooth returns.
Defined benefit schemes: yes, they’re included
If you’re a member of a defined benefit scheme (PSS, CSS, MSBS, or a corporate defined benefit plan), Division 296 applies to you too. The legislation confirmed this, with draft regulations released in March 2026 providing the specific calculation methods for defined benefit interests.
The challenge with defined benefits is that they don’t have a traditional “balance” or identifiable “earnings” in the way an accumulation account does. The benefit is a promised income stream, not a pool of assets you control. So the regulations prescribe a formula for calculating a notional TSB and notional earnings for Division 296 purposes.
The practical implication: if you’re in a government or corporate defined benefit scheme and your calculated TSB exceeds $3 million, you’ll receive a Division 296 assessment even though you can’t control the investment returns or the balance. You also can’t access the SMSF cost-base reset, because that only applies to small funds. If you’re in this position, get specific advice from someone who understands how Division 296 interacts with your scheme rules.
Spouse balance splitting: the planning opportunity most people miss
Because Division 296 is assessed per individual, not per household, the way super is distributed between partners matters more than ever. A couple with $6 million in super split evenly ($3 million each) has zero Division 296 liability. The same $6 million split $5 million / $1 million means one partner is paying additional tax on a significant portion of their earnings.
There are several tools to address this, and they intersect with the contribution cap changes taking effect on the same date:
Contribution splitting: you can split up to 85% of your concessional contributions from the previous financial year to your spouse. This doesn’t reduce the amount going into super overall, but it redirects it to the lower-balance partner. Over time, this rebalances the split.
Spouse contributions: contributing to your spouse’s super directly (non-concessional) to build their balance. With the TBC rising to $2.1 million from 1 July 2026, the eligibility thresholds for spouse contributions have also shifted. If one partner is well below $2.1 million, there’s more room.
Recontribution strategies: withdrawing a lump sum from the higher-balance partner’s super (if they’ve met a condition of release) and the lower-balance partner contributing it to their own super. This is a more aggressive move and needs careful modelling for tax and contribution cap compliance.
All of these strategies need to be considered alongside the super contribution cap changes and the broader question of how super fits into your overall investment structure. The right answer isn’t always “maximise super.” It’s “use the right structure for the right money.”
Should you pull money out of super?
The question we’re getting asked most is whether you should pull money out of super. And the answer for most people is: probably not.
Super, even with Division 296, is still taxed at a lower rate than most alternatives for high-income earners. A 30% effective rate on earnings above $3 million is lower than the 47% marginal rate (plus Medicare) you’d pay on investment income held personally. It may also be lower than the effective rate through some trust or company structures, depending on how income is distributed and to whom.
Withdrawing money from super triggers consequences. If you sell assets inside super to fund the withdrawal, you crystallise capital gains and pay fund-level CGT. The money then sits outside the super environment, where future earnings are taxed at your marginal rate. And you permanently lose the super contribution space: you can’t just put it back later.
There are situations where partial withdrawal makes sense. If your balance is well above $3 million and you’re holding assets that generate high taxable income (rather than growth), the additional Division 296 tax on those earnings could tip the balance. If you’re in your late 50s or 60s with access to your super, and you have a lower-balance spouse, a recontribution strategy might improve the overall household position.
But the decision needs to be modelled, not guessed. The cost of getting this wrong in either direction (staying when you should restructure, or leaving when you should stay) is measured in tens of thousands over a decade. This is not a decision to make based on a newspaper headline or a panicked conversation at a dinner party.
Your pre-30 June 2026 action list
✓ SMSF trustees: decide on the cost-base reset. If your SMSF holds assets with significant unrealised gains built up before July 2026, opting in could save meaningful tax over time. If you hold assets with unrealised losses, resetting wipes out those losses for Division 296 purposes. It’s all-or-nothing across the fund. This needs proper modelling before you elect.
✓ Get current valuations on all unlisted assets. Property, unlisted shares, private company interests. Your TSB needs to be accurate at 30 June 2026, and the cost-base reset uses market values at that date. An outdated or approximate valuation could cost you either way.
✓ Review balance allocation between spouses. Understand both partners’ TSB and whether contribution splitting, spouse contributions, or recontribution strategies could improve the household position before Division 296 kicks in.
✓ Model the actual tax impact. Don’t react to headlines. Work out the actual Division 296 liability on your balance and your realistic earnings. For many people just above $3 million, the additional tax is modest. For people well above, the numbers are bigger but so are the planning opportunities.
✓ Review your overall structure. Super, trusts, personal, company. The right mix depends on your income, asset types, time horizon, and estate plan. Division 296 changes the calculus, but it’s one input in a bigger equation. If you haven’t reviewed your tax structures recently, now is the time.
FAQs
When does Division 296 start?
1 July 2026. The first assessments will arrive after 30 June 2027, based on your super earnings during the 2026–27 financial year.
Does Division 296 tax unrealised capital gains?
No. The final legislation removed unrealised gains from the calculation. Only realised earnings are taxed, using normal tax principles including CGT discounting. This was the most significant change from the original proposal.
Is the $3 million threshold indexed?
Yes. The $3 million threshold is indexed to CPI in $150,000 increments and the $10 million threshold in $500,000 increments. This prevents bracket creep from gradually pulling more people into the tax.
Can I withdraw super to get below $3 million and avoid the tax?
In the first year (2026–27), your TSB at 30 June 2027 determines liability, so withdrawing before that date can work. From 2027–28 onwards, the ATO uses the higher of start or end-of-year balance, making mid-year withdrawals less effective. And withdrawing triggers its own tax consequences. Model it properly before acting.
How do I pay the Division 296 tax?
The ATO issues the assessment to you personally. You have 84 days to pay. You can pay from personal funds, or within 60 days request a release authority so your super fund pays the ATO directly.
Does Division 296 apply to defined benefit schemes?
Yes. Regulations provide specific calculation methods for defined benefit interests, including PSS, CSS, and MSBS. The calculation is more complex than for accumulation accounts. If you’re in a defined benefit scheme with a high notional balance, get specific advice.
Does the cost-base reset apply to industry funds?
No. The SMSF cost-base reset is available to small funds only. Large APRA-regulated funds (industry and retail) use a different method to exclude pre-July 2026 gains, but only for the first four years (2026–27 to 2029–30).
Should I do the cost-base reset if my balance is under $3 million?
Potentially yes. The cost base is permanent. If your balance is under $3 million today but could grow past it in the future, the reset locks in a higher cost base for Division 296 purposes on all your current assets. Without it, pre-2026 gains get captured when you eventually sell. The election needs to be made by the due date of your 2026–27 return regardless of your current balance.
What to do next
Division 296 doesn’t make super a bad deal. For most people, it’s still the most tax-effective vehicle for long-term wealth building. But it does mean the “pile as much into super as possible” approach needs a sharper edge if you’re above or approaching $3 million. The question is no longer “should I maximise super?” It’s “what’s the right mix between super and other structures, given my balance, my income, and my timeline?”
That’s a modelling question, not an opinion question. And the cost of getting it wrong, either by staying in super when you should restructure, or by pulling money out when you should stay, is measured in tens of thousands of dollars over a decade. Indecision is expensive. But so is a knee-jerk reaction based on fear instead of numbers.
If your balance is above $2 million and you haven’t modelled the Division 296 impact on your specific situation, book a strategy call with the Pivot Wealth team. We’ll run the numbers, show you the actual tax cost under different scenarios, and map out whether any structural changes make sense before 1 July. This is exactly the kind of decision where the cost of getting advice is a fraction of the cost of getting it wrong.
If you’re earlier in your wealth-building journey and want to understand how super, tax, and investing fit together, start with the Smart Money Accelerator. Same income. Different future. The difference is whether you’re using all the levers available to you, or leaving them on the table.
Disclaimer: This is general information for Australians. It isn’t personal financial, tax, or legal advice. Consider getting advice from a licensed financial adviser and a registered tax agent before acting.