Division 296 Tax Explained: The New Super Tax on Balances Over $3 Million (2026)

Important note before you read on: Division 296 tax has been introduced into Parliament as a Bill in 2026 but has not yet passed as law. This article is based on the proposed legislation as introduced. If and when it passes, changes may be made. We will update this article accordingly. Please speak to your financial adviser or tax professional before making any decisions.

A New Tax on Large Super Balances Is Coming

If your total super balance is above $3 million, the government is proposing a new tax that will change how your super earnings are taxed, starting from 1 July 2026.

It is called Division 296 tax. And if you have a large super balance, whether in an SMSF or an industry fund, this is one of the most important super tax changes in years.

Right now, earnings inside super are taxed at just 15%. That low rate is the whole point of super, it rewards Australians for saving for retirement over the long term.

The proposed new tax on super balances over $3 million would double that rate to 30% on the portion of earnings that relates to your balance above the threshold. You keep the 15% rate on everything below $3 million, but above it, the concession is halved.

Why Is the Government Introducing This?

The government believes that very large super balances are receiving a tax break that was never intended for amounts of this size. Super was designed to fund a comfortable retirement, not to be a low-tax shelter for balances running into the millions.

Division 296 is the government's way of winding back that advantage for those at the top end, while leaving the tax treatment of ordinary super balances completely untouched.

Who Does This New Super Tax Affect?

Division 296 affects you if your total super balance, the combined value of all your super accounts added together, is above $3 million at the end of the financial year.

This includes:

• Your SMSF balance
• Any industry fund or retail super fund balance
• All accounts combined — not each account separately

The $3 million threshold will rise gradually over time in line with inflation, so it will not stay at $3 million forever.

If your balance is well under $3 million today, this may not affect you right now. But if your super is growing strongly, particularly if you hold property inside an SMSF, it is worth understanding before you get there.

How Does Division 296 Tax Actually Work?

Think of it this way.

Today, every dollar of earnings inside your super, rent from a property, dividends from shares and interest, is taxed at 15%.

Under the proposed changes, the portion of your earnings that relates to your balance above $3 million will be taxed at an extra 15% on top, making the total rate 30% on that portion.

That is still lower than the top personal tax rate of 47%. But it is double what super earnings cost you today.

A Simple Example — How the Tax Is Calculated

Sarah has an SMSF with $5 million in total assets. She holds a commercial property inside her SMSF that generates $150,000 in rent per year. After fund expenses, her fund earns around $120,000 for the year.

Step 1: How much of Sarah's balance is above $3 million?

Sarah's total super balance is $5 million. The threshold is $3 million. So $2 million out of $5 million or 40%, sits above the threshold.

Step 2: How much of her earnings are caught?

40% of $120,000 = $48,000

This is the portion of Sarah's earnings that Division 296 applies to.

Step 3: What is the extra tax?

15% × $48,000 = $7,200

Her SMSF continues to pay its normal tax on fund income as it always has. But Division 296 is Sarah's own personal tax bill, separate from her fund, and it comes to $7,200 for the year. She pays this herself, not her fund.

She can pay it from her own savings outside super, or arrange for money to be released from her SMSF to cover it.

Does Division 296 Tax Unrealised Gains on Property?

This is one of the most common questions about Division 296 and a really important one, especially for SMSF members holding property.

For SMSFs holding direct property, if the property goes up in value but has not been sold, the ATO does not count that increase as income for your fund. So a rise in property value does not directly create a Division 296 tax bill in that year.

However, and this is the part that catches people off guard.

As your property grows in value, your total super balance grows with it. And a higher total super balance means a larger portion of your earnings, like rent, gets caught by Division 296 each year.

Here is a simple way to think about it:

The unrealised gain is not directly taxed year to year. But as the property grows in value, more of your rental income gets taxed at 30% instead of 15% quietly, year after year.

And when you eventually sell the property, the capital gain is taxed in the normal way but at a higher effective rate than before, because your balance is above $3 million.

Without Division 296, capital gains in super are taxed at an effective rate of 10% after the fund's CGT discount. With Division 296, on the portion above the $3 million threshold, that rises to 25%.

Nothing about when gains are taxed has changed. What has changed is the rate you pay when they are.

Does Division 296 Apply to Industry Fund Members?

Yes — and this surprises many people.

Division 296 is not just an SMSF issue. The new tax on large super balances applies to all super funds, including industry funds like AustralianSuper, Hostplus, REST, and others.

The key difference is simply how it works in practice:

• In an SMSF, you have direct visibility over your fund's assets and earnings, so you can see the impact year to year
• In an industry fund, the fund calculates your share of earnings and reports it to the ATO, you do not need to do the calculation yourself, but the tax bill still comes to you personally

If your total super balance across all accounts, including any industry fund, is above $3 million, Division 296 applies regardless of where your money sits.

The Two Thresholds — $3 Million and $10 Million

The proposed law introduces two levels:

Most people affected will sit in the first bracket. The second level is aimed at very large balances and is less commonly discussed, but worth knowing exists.

When Would Division 296 Start?

The proposal is for Division 296 to apply from 1 July 2026, subject to the legislation passing Parliament.

For the first year only, whether you are caught is determined by your total super balance at 30 June 2027, the end of that first year. From the following year onwards, it looks at your balance at either the start or end of the year, whichever is higher.

What Should You Do Now?

You do not need to panic. But you do need to be aware. Here are three things worth thinking about:

1. Know your number.

Do you know your total super balance across all accounts right now? If you are approaching or above $3 million, you need to understand where you stand, not after the law passes. Log in to your super fund or check through myGov to get your current balance.

2. If you hold property in an SMSF, ask your adviser about your options.

The proposed law includes a one-time opportunity for SMSFs to reduce their future Division 296 exposure on assets held before 1 July 2026. Timing matters, this needs to be considered before you lodge your 2026-27 SMSF tax return. Ask your SMSF adviser about it sooner rather than later.

3. Think about whether making more super contributions still makes sense.

If your total super balance is already above $3 million, putting more money into super may not be as tax-effective as it used to be. Your financial adviser can help you work out whether super is still the best place for new savings at your balance level.

Frequently Asked Questions

Does Division 296 tax apply to industry super funds?

Yes. Division 296 applies to all super funds, including industry funds, retail funds and SMSFs. If your total super balance across all accounts exceeds $3 million, the tax applies regardless of which fund holds your money.

Are unrealised gains on property taxed under Division 296?

Not directly, year to year. If your SMSF holds direct property that has gone up in value but not been sold, that gain does not directly create a Division 296 bill in that year. However, the higher property value increases your total super balance, which means more of your rental income gets caught by Division 296 each year. And when the property is eventually sold, the capital gain is taxed at a higher effective rate than before.

How is Division 296 tax calculated?

The calculation works out what percentage of your total super balance sits above the $3 million threshold. That same percentage is then applied to your fund's earnings for the year. The result is your "taxable superannuation earnings" and Division 296 tax is 15% of that amount.

Who pays Division 296 tax, the fund or the individual?

The individual pays it personally, not the fund. You can pay it from personal savings outside super, or arrange for money to be released from your super fund to cover the bill.

When does Division 296 tax start?

The proposed start date is 1 July 2026, meaning the 2026-27 financial year. However, the legislation has not yet passed Parliament as at March 2026, and changes may be made before it becomes law.

Does the $3 million threshold increase over time?

Yes. The threshold is proposed to be indexed to inflation, meaning it will gradually rise over time. It starts at $3 million for the 2026-27 year and increases from 2027-28 onwards.

What is the tax rate under Division 296?

For balances between $3 million and $10 million, the extra tax is 15%, taking the total tax rate on that portion of earnings from 15% to 30%. For balances above $10 million, an additional layer applies, taking the rate to 40% on that very large portion.

The Bottom Line

Division 296 does not take super away from anyone. But for those with balances above $3 million, it reduces the tax advantage that made super so attractive in the first place.

The three things to remember:

• It is an extra 15% tax on the portion of your super earnings that relate to your balance above $3 million, taking the total rate to 30%
• It applies to every type of super fund, SMSF, industry fund, or retail fund
• Property held in an SMSF is not directly taxed on unrealised gains year to year, but as the property grows in value, more of your rental income gets caught, and when you sell, the gain is taxed at a higher rate

The legislation has not yet passed. But understanding it now and talking to your adviser, puts you well ahead of most people.

This article is general in nature and does not constitute financial, tax or legal advice. It is based on proposed legislation as at March 2026 which has not yet been enacted. Laws may change. Please seek professional advice specific to your circumstances before making any decisions.