Division 296 Super Tax 2026: Key Changes for High-Balance Super Members

Australia’s proposed Division 296 super tax is set to reshape how high-balance superannuation accounts are taxed. Aimed at individuals with balances exceeding $3 million, this reform introduces a new layer of tax that could significantly impact SMSF members, investors, and business owners.

If you are building wealth through super, understanding these changes is essential to protect your retirement savings.

What Is Division 296 Super Tax?

Division 296 is a proposed additional 15% tax on superannuation earnings for individuals whose Total Super Balance (TSB) exceeds $3 million.

In simple terms:

• Current tax on earnings: 15%
• Additional Division 296 tax: +15%
• Total potential tax: 30% (on the excess portion only)

A major change is that this tax includes unrealised gains, meaning increases in asset value may be taxed even if the asset hasn’t been sold.

Current Super Tax Rules in Australia

Australia’s superannuation system currently offers concessional tax benefits:

One of the biggest advantages is tax-free earnings in retirement phase

Division 296 vs Current Super Rules

Here’s how the proposed system compares:

The biggest shift is the introduction of tax on unrealised gains, which is not part of the current system.

Who Will Be Affected?

Division 296 is expected to impact a small percentage of Australians, including:

• SMSF members with large balances
• Long-term investors with strong growth
• Business owners and high-income earners
• Property investors using super as a wealth vehicle

Why This Change Matters

1. Tax on Unrealised Gains

You may need to pay tax even without selling assets, which is a major departure from traditional tax rules.

2. Liquidity Challenges

Funds holding property or illiquid investments may struggle to pay tax without selling assets.

3. Investment Strategy Impact

The change may influence how investors structure their portfolios inside super.

Example: $4 Million Super Balance

Scenario:

• Super Balance: $4,000,000
• Annual Growth: 5% = $200,000

Under Current Rules:

• Tax = 15% of $200,000

$30,000

Under Division 296:

• Excess balance = $1,000,000 (25%)
• Earnings on excess = $50,000
• Additional tax = 15% of $50,000 = $7,500

Total tax = $37,500

Extra tax impact: $7,500

Strategies to Consider

If your balance is approaching $3 million:

Review Contribution Strategy

Additional contributions may become less tax-effective.

Diversify Outside Super

Consider alternative structures such as:

• Family trusts
• Investment companies

Review SMSF Investments

Reduce reliance on illiquid assets like property.

Seek Professional Advice

Modelling your future tax position is essential under these new rules.

Common Misconceptions

The tax applies to the full balance
It only applies to earnings on the portion above $3M

It is a wealth tax
It is a tax on earnings (not the balance itself)

Pension phase avoids tax
Division 296 may still apply

The threshold will increase
The $3M threshold is not indexed

When Will It Start?

• Proposed start date: 1 July 2025
• First affected year: 2025–26
• Assessments expected from: July 2026

Final implementation depends on legislation approval.

Final Thoughts

Division 296 introduces a major shift in how superannuation is taxed for high-balance members. While it currently affects a small group, the fixed threshold means more investors may be impacted over time.

Planning early can help you minimise tax and optimise your retirement strategy.

Keep more of what you earn

Contact Supertax

Phone: (03) 7074 8818
Email: info@supertax.com.au

Website: https://supertax.com.au/

Address: Suite 1, 7 Bridge St, Werribee Victoria 3030, Australia

This article contains general information only and does not take your personal circumstances into account. Tax and superannuation rules change, and some measures discussed may be subject to legislation. Speak with a registered tax agent before acting.