The Australian Parliament has passed legislation for a new tax on superannuation balances over $3 million, commonly known as the Division 296 tax or “$3 million super tax”. This measure will take effect from 1 July 2026, fundamentally changing how earnings on large super balances are taxed. Below we explain what this means for self-managed super funds (SMSFs) as well as members of industry and retail super funds, focusing on the key facts, impacts, and planning considerations for those affected.
New Tax on Large Super Balances
From 1 July 2026, superannuation earnings on balances above $3 million will incur an additional 15% tax, on top of the standard 15% tax within the fund. For balances above $10 million, the extra tax is 25%. This effectively raises the tax rate on earnings for those portions to ~30% and ~40%, respectively.
Impacts a Small Minority of Members
Division 296 applies to individuals whose total super balance across all funds exceeds $3 million. This includes SMSFs, retail, and industry funds combined. Only about 0.5% of super members (roughly 80,000 people) are expected to be affected initially.
No Tax on Unrealised Gains
Unlike earlier proposals, the final law will tax only realised earnings (actual income and gains) and not unrealised gains on assets. To facilitate this, funds can opt for a one-time capital gains tax (CGT) cost base reset on assets at 30 June 2026, locking in past growth so it won’t be taxed under the new regime.
Personal Tax, Payable via Super
The Division 296 tax will be assessed personally to the individual, not taken automatically by the fund. The ATO will issue a personal tax assessment for the extra tax, but you can elect to pay it from your super fund via a special release authority (similar to how Division 293 high-income super tax is handled).
How Does the Tax Work?
The existing 15% tax on earnings inside super still applies. Division 296 adds extra tax only on the portion of earnings linked to the part of your balance above the thresholds:
Simple example: If your total super balance is $8 million, then $5 million (62.5%) is above $3 million. Broadly, about 62.5% of your relevant earnings for the year would be subject to the additional Division 296 tax meaning your overall tax rate on super earnings will be somewhere between 15% and 30%, depending on the size of your balance and earnings.
• Two thresholds: above $3m an extra 15% applies; above $10m a higher tier applies (effective tax on that slice is higher).
• Indexation: The $3 million threshold (and the $10 million tier) will be indexed over time in set increments, which helps keep the measure targeted at higher balances rather than expanding purely due to inflation.
• ATO assessment: the ATO calculates your liability using data from all your super funds and issues a notice of assessment.
• How its paid: you can pay personally or choose to have your super fund pay it under a release authority process.
Why It Matters – Implications for SMSFs and Large Fund Members
For clients with larger balances (including SMSF trustees), the key practical issues are:
• Liquidity: ensure there is enough cash/near-cash to pay any annual liability (especially if your SMSF holds property or other illiquid assets).
• Investment and structure review: how assets are held (directly or via entities) can affect timing of taxable earnings and administration.
• Threshold planning: if you’re close to $3m, consider whether contributions, pension commencements/withdrawals and rebalancing still align with your objectives under the new settings.
• Administration: expect extra reporting and new information flows between funds and the ATO.
Despite the extra tax, superannuation remains a highly tax-effective vehicle for retirement savings – even a 30% tax on above-threshold earnings is still lower than the top marginal income tax rate of 47% outside super. The key is to adapt to the new rules so that large super balances can still be used efficiently and in line with your goals.
Plan Your Path to Financial Independence
Building long-term wealth and achieving financial independence doesn’t have to be complicated. With the right strategy and structure, small decisions made today can make a significant difference over time.
If you would like guidance on building wealth, investing in property, or using superannuation strategies to grow your assets, the team at Chan & Naylor can help. You can schedule a consultation with Chan & Naylor to discuss your options and receive expert advice on wealth-building strategies.
At Chan & Naylor, our team works with SMSF trustees, high-net-worth individuals, and all our clients to navigate changes like these and tailor strategies accordingly. If you’re concerned about how the Division 296 tax may affect your super, now is an ideal time to review your financial structure. We can help you understand your potential exposure, explore options to mitigate the tax, and ensure you remain on track for your retirement objectives. Feel free to contact our advisers for a personalised discussion on preparing for this new super tax law.
You can also read more about Self-Managed Super Funds and how they work here.
