Division 296 is an extra tax on part of the earnings of people with large superannuation balances. It started on 1 July 2026. The first year it bites is 2026-27, and the first assessments do not go out until the later half of 2027-28.
Two thresholds, both set out in the ATO guidance. For 2026-27 the large super balance threshold is $3 million and the very large super balance threshold is $10 million. Above the first you pay an extra 15% on a slice of your earnings. Above the second you pay a further 10% on a smaller slice.
The version that finally passed, in the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026, is a long way from the one that caused all the noise in 2023 and 2024. Unrealised gains are out. The thresholds are indexed. Most of what people read 2 years ago about this tax is now wrong, which is the main reason I am writing it up again from the current law.
What actually gets taxed
Not your balance. A proportion of your earnings.
The ATO works out a percentage: how much of your total super balance sits above the threshold, expressed as a share of the whole balance. That percentage is then applied to your total super earnings for the year, and the result is what gets taxed.
Which produces outcomes that feel wrong until you see the formula. Two people each earn $200,000 in their funds this year. One has a balance of $3.1 million, the other $6 million. The first has 3.23% of their balance above the threshold, so $6,460 is taxable and the tax is $969. The second has 50% above the threshold, so $100,000 is taxable and the tax is $15,000. Same earnings, 15 times the tax.
Sitting just over the line costs you very little. That is worth knowing before anyone panics about crossing $3 million.
Earnings means earnings now, not paper gains
This is the change that matters most. Earnings for Division 296 are what the fund actually earned: interest, dividends, rent, realised capital gains net of realised losses, less deductible expenses. A property in an SMSF that went up $400,000 on paper and was not sold contributes nothing. Your fund does the calculation and reports your share to the ATO, and most funds attribute their Division 296 fund earnings across members. Defined benefit interests not in retirement phase, and certain other prescribed interests, use a different formula based on the change in value of the interest.
SMSFs report through the SMSF annual return. If you are in an SMSF and think your combined balances might clear the threshold, the ATO says plainly that you need to tell the trustee, because the fund has calculations to do that it will not do unprompted. A law companion ruling on how funds work this out is still being drafted.
The 30% and 40% you keep reading are a comparison, not a calculation
Every article on this quotes an effective rate of 30% between $3 million and $10 million, and 40% above it. Those numbers come from adding the 15% the fund already pays on its taxable income to the Division 296 rate.
They are useful for arguing about policy and useless for working out what you owe. The fund tax and the Division 296 tax are 2 different assessments, on 2 different taxpayers, on 2 different bases. The fund is taxed on fund taxable income. You are taxed on a proportion of your earnings that depends on your balance.
And the addition falls apart where a lot of large balances actually sit. A retirement phase interest pays 0% inside the fund. Apply Division 296 to earnings on that interest and the total tax is the Division 296 rate on its own. Same for untaxed government schemes. If somebody hands you a 30% number and a balance in pension phase, they have not done the work.
Only 2 dates matter, and in 2026-27 only 1 of them
From 2027-28 onwards the test looks at your total super balance just before the start of the income year and at the end of it. If either is above the threshold and your earnings are above nil, you are in.
Nothing in between counts. The ATO’s own example has a member receiving insurance proceeds that push his balance to $2.6 million mid-year, withdrawing $1.55 million, and finishing under the threshold. He is not assessed, because the 2 dates that matter both sat below the line.
2026-27 is different and it is the reason this year is worth paying attention to. Transitional rules mean only your balance at 30 June 2027 is tested. Your position on 1 July 2026 is irrelevant. Somebody sitting at $3.15 million now who takes a benefit before 30 June 2027 and lands under $3 million pays nothing for the year.
From 2027-28 that door closes. If you start the year above the threshold, withdrawing during the year does not save you.
Dying in 2026-27 gets you out of it entirely
The ATO lists 3 categories of people excepted from Division 296 tax: child recipients of a super income stream, people who have received a structured settlement contribution for personal injury, and anyone who dies in the 2026-27 income year.
That third one is a transitional artefact and it is absolute. Die during the first year and you are never liable, whatever your balance was.
After that the position reverses hard. From 2027-28, if your balance just before the start of the year was above the threshold, dying does not help. Your balance is treated as nil from the date of death, which locks in the proportion calculated at the start of the year. Earnings on your interest keep being reported until the death benefits are paid out or a death benefit income stream starts, and they get added to the assessment for the year you died by amendment. That assessment forms part of your final tax affairs and can be paid from your super interest or your estate.
So the deathbed withdrawal, which people are already asking about, works for one financial year only.
The SMSF details that catch people
Limited recourse borrowing arrangement amounts are sometimes counted in your total super balance for other purposes. They are never counted for Division 296. If your fund has a geared property, the numbers you have been using for contribution caps are not the numbers that apply here.
Contributions matter too, because they lift the balance that drives the whole calculation. Anyone who has used the small business CGT concessions to push sale proceeds into super, or who has been running a deliberate salary and dividend mix with large concessional contributions, has been building the exact number Division 296 now measures.
Your balance is aggregated across every fund you belong to. SMSF, industry fund, retail fund, defined benefit, plus interests supporting a super income stream you receive because somebody else died, plus interests you hold notionally from a family law split. People who moved most of their money into an SMSF and left a small legacy account somewhere often forget the second one exists.
If your SMSF is holding property, the realised gain on a sale flows straight into Division 296 earnings for that year. The interaction with how CGT works on property is worth thinking through before you time a disposal, because a single sale can create a Division 296 year out of nothing.
And if you are setting up an SMSF right now, this is a live design question rather than a distant one.
You get the bill, not the fund
The ATO assesses you personally. The assessment goes to your myGov inbox if you lodge through myTax, or to your tax agent if the communication preferences are set that way, which is worth checking before 2027-28.
Payment is due 84 days after the assessment issues. You can pay it yourself. You can also elect, within 60 days of the assessment, to have the money released from one or more of your super funds. Do neither and the Commissioner can direct a fund to release an amount to cover the debt.
For an SMSF holding illiquid assets, that 60 day election is a liquidity question, not an administrative one. A fund that is fully invested in a single property has to find the cash from somewhere.
Defined benefit interests where you have not yet taken an end benefit get their Division 296 liability deferred to a later date, with interest applying if you do not pay by the eventual due date. You can pay a deferred liability voluntarily to stop interest accruing.
What I would be doing between now and 30 June 2027
- Get the actual aggregated total super balance, from ATO online services rather than from a member statement, and strip out any LRBA amount.
- Work out whether the 2026-27 transitional year gives a genuine one off opportunity, given this is the only year where the closing balance alone decides it.
- Look at the earnings side, not just the balance. A large balance with modest realised earnings produces a small assessment.
- If there is an SMSF, tell the trustee now that the member may be over the threshold, because the fund has reporting to do.
- Check where the assessment will be delivered, and whether the money to pay it will have to come out of the fund.
Employer contributions keep pushing the balance up in the background while all of this is being modelled, and the Payday Super timing changes mean they land in the fund faster than they used to. If you want the threshold, the earnings estimate and the assessment date sitting in one place instead of 3 spreadsheets, that is what Tax Assistant is for.
Frequently asked questions
Who has to pay Division 296 tax?
Individuals whose total super balance is above the large super balance threshold, which is $3 million for 2026-27, and who have super earnings above nil for the year. Child recipients of a super income stream, people who received a structured settlement contribution for personal injury, and anyone who dies during the 2026-27 income year are excepted.
Does Division 296 tax unrealised capital gains?
No. The version that became law taxes realised earnings only: interest, dividends, rent and realised capital gains net of losses, less deductible expenses. An asset that rose in value and was not sold contributes nothing to the calculation. Earlier drafts did include unrealised gains, which is why a lot of commentary written before 2026 is now out of date.
Are the $3 million and $10 million thresholds indexed?
Yes, both are indexed in line with the consumer price index. The large super balance threshold moves in $150,000 increments and the very large super balance threshold in $500,000 increments. Neither was indexed in the earlier drafts, which was one of the main objections to them.
Can I withdraw money to get under the threshold?
For 2026-27 only, and it works cleanly because transitional rules test just your balance at 30 June 2027. From 2027-28 the test looks at your balance just before the start of the year as well as at the end, so starting the year above the threshold means withdrawing during it will not remove the liability. Any withdrawal still needs a condition of release.
Does my super fund pay the tax or do I?
You do. The assessment is issued to you personally and is due 84 days later, though within 60 days you can elect to have the amount released from one or more of your super funds to cover it. If you neither pay nor elect, the Commissioner can direct a fund to release the money.
When will I get my first Division 296 assessment?
Assessments for the 2026-27 income year begin issuing in the later half of the 2027-28 income year. The delay exists because funds have to report member level earnings first. Nothing arrives during 2026-27 itself.
The technical detail
Legislation. Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 (Cth) and Superannuation (Building a Stronger and Fairer Super System) Imposition Act 2026 (Cth). Both passed Parliament on 10 March 2026. Division 296 of the Income Tax Assessment Act 1997. Applies from 1 July 2026, first affected income year 2026-27.
Thresholds for 2026-27. Large super balance threshold (LSBT) $3,000,000. Very large super balance threshold (VLSBT) $10,000,000. Indexed to CPI, LSBT in $150,000 increments and VLSBT in $500,000 increments.
Rates. 15% on taxable super earnings referable to the proportion of the TSB reference amount above the LSBT. An additional 10% on the component referable to the proportion above the VLSBT.
TSB reference amount. For 2026-27, the TSB at the end of the income year. For 2027-28 onwards, the greater of the TSB just before the start of the year and the TSB at the end of the year. Limited recourse borrowing arrangement amounts are excluded from the TSB for Division 296 purposes in all cases.
Formulas. Proportion over LSBT equals [(TSB reference amount minus LSBT) divided by TSB reference amount] times 100, rounded to 2 decimal places. Proportion over VLSBT uses the same form with the VLSBT substituted. Taxable super earnings equals total super earnings multiplied by the relevant proportion.
Worked example from ATO guidance. TSB $12,000,000 at 30 June 2027 with total super earnings of $500,000. Proportion over LSBT 75%, giving taxable super earnings of $375,000 taxed at 15% for $56,250. Proportion over VLSBT 16.67%, giving a very large super balance component of $83,350 taxed at 10% for $8,335. Total liability $64,585.
Reporting. Funds calculate and report relevant super earnings per member. SMSFs report via the Self-managed superannuation fund annual return. A law companion ruling on fund level calculations was in draft as at mid 2026.
Exceptions. Child recipient of a super income stream at any time during the income year; recipient of a structured settlement contribution for personal injury in that or an earlier income year; death during the 2026-27 income year. Separate exclusion rules apply to specified state and Commonwealth judicial and office holder interests, foreign super fund interests and non-complying super plan interests.
Death from 2027-28. TSB is nil from the date of death, so the proportion is fixed by the TSB just before the start of the year of death. Relevant super earnings continue to be reported until all death benefits are paid or a death benefit income stream commences, and are added to the year of death assessment by amendment.
Payment. Due and payable 84 days after the notice of assessment issues. Election to release from super must be made within 60 days of the assessment. Failing both, the Commissioner may require a fund to release an amount. Division 296 liabilities on defined benefit interests are deferred until an end benefit is taken.
Assessment timing. 2026-27 assessments begin issuing in the later half of the 2027-28 income year.
