In March 2026, the Australian Parliament passed the “Building a Stronger and Fairer Super System” legislation, introducing Division 296. This legislation changes the taxation of earnings for individuals with very high superannuation balances. For many Australians, superannuation rules remain unchanged, but high-balance super owners need to understand how this affects their retirement savings.
What is Division 296?
Division 296 is a new tax on superannuation earnings for accounts exceeding certain thresholds. It is designed to ensure that super concessions are better targeted to provide fairness and sustainability in the retirement system. Key points include:
- Large Balance Thresholds:
- Earnings on super balances over $3 million are taxed at 30% total (15% standard fund tax + 15% Division 296).
- Earnings on balances over $10 million are taxed at 40% total (15% standard fund tax + 25% Division 296).
- Start Date: The tax applies to income years starting 1 July 2026.
- Realised Earnings Only: Division 296 applies to realised earnings, like interest, dividends, rent, and realised capital gains, not to unrealised gains.
- Balance Assessment: The tax is calculated based on the higher of the opening or closing total superannuation balance (TSB) for the year. For the first income year (2026/27), only the closing balance at 30 June 2027 is used. This integrity measure prevents last-minute withdrawals to avoid the tax.
- Indexation: Both the $3 million and $10 million thresholds will be indexed to the Consumer Price Index (CPI), ensuring that inflation does not unintentionally expand the tax base over time.
How Division 296 Tax is Calculated
To determine the tax, the proportion of super above each threshold is applied to the individual’s realised earnings.
Example Calculations:
| Super Balance | Total Earnings | Taxable Earnings (above $3M) | Taxable Earnings (above $10M) | Division 296 Tax |
| $5M | $50,000 | $20,000 (40% above $3M) | $0 | $3,000 |
| $12M | $100,000 | $75,000 (75% above $3M) | $16,667 (16.67% above $10M) | $12,917 |
| $15M | $200,000 | $160,000 (80% above $3M) | $50,000 (33.3% above $10M) | $50,000 |
Note: These examples illustrate the tiered approach under Division 296 for clarity.
Why the Legislation Was Introduced
Australia’s superannuation system is built to support retirement savings, not wealth accumulation. Historically, very high balance s received disproportionately large tax concessions. Division 296 ensures:
- Fairness: Higher balances contribute proportionally more in tax.
- Sustainability: The system remains equitable for future retirees.
- Targeting: Only a small proportion of Australians are affected.
Professional bodies and superannuation funds have generally welcomed the clarity and progressivity introduced by the tiered, indexed thresholds, while noting complexities for some taxpayers.
Impact on Superannuation Planning
For most Australians, superannuation rules remain unchanged. However, individuals with balances over $3 million should consider:
- Reviewing investment strategies to manage taxable earnings.
- Planning contributions and withdrawals carefully, especially around financial year-end.
- Consider CGT adjustments: Division 296 only applies to earnings after 1 July 2026. SMSFs and small APRA funds can elect to adjust the cost base of assets to market value at 30 June 2026, while larger funds will apply prescribed adjustments for the first four financial years.
- Check asset valuations: SMSFs or small APRA funds holding illiquid assets, like property or unlisted investments, should ensure valuations are accurate for 2026 to calculate Division 296 correctly.
- Seeking professional advice to optimise super strategies under the new tax rules.
Low Income Superannuation Tax Offset (LISTO) Changes
The legislation also enhances support for lower-income earners:
- Income Threshold: Increased from $37,000 to $45,000.
- Maximum Payment: Raised from $500 to $810.
- Start Date: 1 July 2027.
These changes aim to improve retirement savings for lower-income Australians, making superannuation more equitable across the income spectrum.
Key Takeaways
With the passage of this legislation, Division 296 introduces a tiered, targeted tax for very high super balances. While most Australians will not be affected, high-balance super owners should understand the implications for their retirement planning.
The Equil Advisory team can help you navigate the implications of Division 296. If your super balance is approaching or exceeds the $3 million threshold, or if you want guidance on how this new tax may affect your retirement strategy, our specialists can help you understand your options, plan effectively, and ensure your superannuation decisions align with your long-term financial goals. Reach out today to receive tailored advice from the Equil Advisory team.
