Superannuation is one of the most tax-effective ways to build wealth for retirement. However, from 1 July 2026, additional tax may apply to some people with very large superannuation balances.
Known as Division 296 tax, the new rules are designed to reduce the tax concessions available on very large super balances. If you have more than $3 million in super, it’s worth understanding how the new rules could affect you and your retirement planning.
What is Division 296 tax?
Division 296 tax is an additional tax that can apply to individuals with a total superannuation balance (TSB) above $3 million. Importantly, you don’t simply pay the tax on your entire super balance or on all of your super earnings. Instead, the rules calculate the proportion of your superannuation earnings that relates to the part of your balance above the relevant threshold. The tax is paid by the individual, rather than directly by the super fund. This means it is separate from the tax that your super fund may already pay on its investment earnings.
How does the new tax work?
For the 2026–27 financial year, there are two important thresholds:
- Up to $3 million: Division 296 tax does not apply.
- Between $3 million and $10 million: an additional 15% Division 296 tax applies to the relevant proportion of your super earnings.
- Above $10 million: an additional 10% applies to the relevant proportion of earnings above the $10 million threshold.
This means the headline tax rate on relevant super earnings can effectively increase to 30% for the portion between $3 million and $10 million, and 40% for the portion above $10 million, when combined with the standard 15% tax that can apply to super fund earnings. The $3 million and $10 million thresholds will be indexed over time in line with the Consumer Price Index, so they are not expected to remain fixed indefinitely.
Does having more than $3 million in super mean you’ll automatically pay Division 296 tax?
Not necessarily.
The calculation takes into account both your total superannuation balance and your superannuation earnings for the financial year. For the 2026–27 financial year, the relevant test is based on your total super balance at 30 June 2027. If your balance is above the applicable threshold and you have positive superannuation earnings, you may have a Division 296 tax liability. This means a temporary increase in your super balance doesn’t necessarily mean you’ll pay tax on the entire amount above $3 million. The calculation is more complex and takes into account how much of your balance sits above the relevant threshold and the earnings attributable to your super interests.
Which superannuation interests are included?
Your total superannuation balance can include interests held through arrangements such as:
- APRA-regulated superannuation funds
- Self-managed super funds (SMSFs)
- Certain public sector superannuation schemes
- Certain defined benefit and retirement income interests
There are specific rules for valuing different types of super interests. Not all superannuation interests are treated in exactly the same way, so people with SMSFs, defined benefit pensions or more complex super arrangements may need additional advice.
How is Division 296 tax calculated?
The calculation is more complicated than simply looking at the growth in your super account.
Broadly, there are three stages.
1. Your superannuation earnings are determined
Your super fund or relevant superannuation arrangement provides information used to determine your superannuation earnings for the year.
2. Your share of those earnings is calculated
Where appropriate, your share of the fund’s earnings is attributed to your individual superannuation interest. Different rules can apply depending on whether your super is held in an APRA-regulated fund, an SMSF, a defined benefit arrangement or another type of super interest.
3. The ATO calculates your Division 296 liability
The ATO then applies the Division 296 formula to determine how much of your earnings relates to the portion of your super balance above the relevant threshold. The ATO will issue an assessment if Division 296 tax is payable.
What about super in retirement phase?
One important difference between Division 296 tax and the tax normally paid by super funds is that Division 296 can apply to superannuation interests in both the accumulation and retirement phases. So reaching retirement does not automatically mean that a large super balance is outside the Division 296 rules. This makes the new tax particularly relevant when considering retirement income strategies and the timing of superannuation withdrawals.
How do you pay Division 296 tax?
If you receive a Division 296 tax assessment, you can generally:
- Pay the tax personally;
- Elect to release an amount from your superannuation to help pay the liability; or
- Use a combination of the two.
If you choose to release money from your super, the election generally needs to be made within 60 days of receiving the assessment notice. There are special rules for certain defined benefit interests, where payment of the tax can generally be deferred until the relevant benefits become payable.
Why should you review your super strategy?
For most Australians, Division 296 tax won’t be relevant. However, if your superannuation balance is approaching or already above $3 million, the new rules could become an important part of your long-term financial and retirement planning.
It may be worth reviewing:
- Your current superannuation balance
- Your expected investment returns
- Your contribution strategy
- Your retirement plans
- Whether you have multiple superannuation accounts
- Your SMSF or defined benefit arrangements, if applicable
- How future contributions and investment growth could affect your position
The right strategy will depend on your individual circumstances. Simply withdrawing money from super or changing your investment strategy to avoid Division 296 tax may not necessarily leave you in a better overall financial position.
Get advice before making major changes
Division 296 adds another layer of complexity to superannuation planning for people with large balances. If you’re approaching the $3 million threshold — or already have a substantial superannuation balance — it’s worth understanding how the rules could affect you before making major contribution, investment or retirement decisions. Dymond Foulds & Vaughan can help you understand how Division 296 tax may affect your superannuation and broader tax position.