On 5 March 2026, the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 passed the House of Representatives. The Bill has now also passed the Senate, with a vote of 33 in favour and 22 against on 10 March 2026.

The Bill introduces Division 296 into the Income Tax Assessment Act 1997 and will impose an additional tax on individuals whose Total Superannuation Balance exceeds $3 million, once the legislation receives Royal Assent.

The measures will apply from 1 July 2026.



What Is Division 296?

Division 296 introduces an additional tax on superannuation earnings attributable to balances exceeding $3 million.

Under the current superannuation system:

• Earnings in accumulation phase are generally taxed at 15% within the superannuation fund

• Earnings supporting retirement phase pensions are generally tax-free (subject to the transfer balance cap)

Division 296 introduces additional personal tax on the earnings attributable to balances exceeding $3 million.

Importantly:

• The tax is imposed on the individual, not the superannuation fund



• The individual may pay the tax personally or elect for the amount to be released from their superannuation fund

 Proposed Tax Tiers

Who Will Be Affected?

The proposed rules apply to individuals whose Total Superannuation Balance (TSB) exceeds $3 million at 30 June of a financial year. With the first year being 30 June 2027.

Key features include:

• The balance test is applied across all super funds combined that an individual has

• The tax is calculated by the ATO and assessed directly to the individual

• Individuals may choose to pay the tax personally or from their super fund



• The legislation currently proposes indexation of the $3 million threshold

How Division 296 Is Calculated?

Step 1 – Determine Total Super Balance (TSB)

Total super balance of all funds of an individual at 30 June each year.

Generally, it will be the amount that shows on your superannuation member statement each year (or adding up several member statements if you have super in multiple funds)

Step 2 – Determine Realised Earnings

Start with the fund’s taxable investment income, i.e. all the things a fund would normally pay tax on – rent, interest, dividends (including franking credits), capital gains (discounted where relevant) less tax-deductible investment expenses.

Concessional contributions are not included in the calculation because Division 296 tax is about taxing investment earnings, not contributions.

Also:

• For Division 296 calculations, adjustments to taxable income to account for the fund paying pensions are ignored.

• Division 296 fund earnings can never be negative.

When it comes to selling assets and realising capital gains:

• Capital gains and losses are treated in the normal way – i.e., capital losses (including those carried forward before 1 July 2026) are offset against capital gains and only the net amount (less a 1/3rd discount for assets owned by the fund for more than 12 months) is included.

• Capital gains are included in Division 296 fund earnings in the same year they’re included in the fund’s taxable income. Unlike the Government’s original proposal, however, there is no tax on unrealised capital gains.

• There are also special rules for funds that have substantial unrealised gains on assets they haven’t sold yet at 30 June 2026– this is explained later.

Step 3 – Calculate Proportion Above Threshold

Proportion above $3M

= (TSB – $3,000,000) / TSB

There is a special rule for the first year, 2026/27.

Only the end of year TSB will be taken into account when calculating the proportion.

This means if your balance is less than $3m in super at 30 June 2027 you will not pay Division 296 tax for 2026/27 no matter how much you had in super at the start of the year.

Step 4 – Apply Additional Tax

Division 296 Tax = Relevant earnings × proportion above threshold × tax rate

Tax rates:

• 15% for balances between $3M and $10M
• 25% for balances exceeding $10M

Capital Gains Relief at 1 July 2026

There is special relief to protect the historical growth in asset values from Division 296 tax when working out how much of the fund’s capital gains should be included in Division 296 fund earnings.

The treatment is different for SMSFs compared to other funds such as industry and retail funds.

SMSF Cost Base Adjustment

For SMSF’s there is a special adjustment to the cost base of all the assets that are owned at 30 June 2026 i.e., a reset to market value at 30 June 2026 rather than original purchase price.

For example, a property it purchased in 2017 for $1.2 million. At 30 June 2026 it’s worth $2.2 million. It’s sold in 2028 for $3 million.

The SMSF will pay income tax on all of the capital gain (less the 1/3^rd discount). The amount subject to tax would be $1.2 million ($3 million less $1.2 million, discounted by 1/3^rd).

No changes to previous treatment.

For Division 296 tax, the amount included in earnings is reduced. The gross capital gain is calculated as the $3 million less an adjusted cost base of $2.2 million, being the value of the property at 30 June 2026. With the 1/3^rd discount applied, this amounts to a net capital gain of $533,333, which is included in the Division 296 fund earnings rather than $1.2 million.

The relief will not be automatic; the fund will have to specifically opt in before it’s 2026/27 tax return is due.

If you choose to opt into the adjusted cost base rules it is an “all inn” scenario, i.e. you cannot use the adjusted cost base for a particular asset (e.g. property) and not others (e.g. shares).

If your fund has certain assets in a loss position at 30 June 2026 you will need to consider whether the relief is worthwhile before making the decision.

For example, an investment in a managed fund was acquired in 2019 for $1.5 Million. At 30 June 2026 it is worth $900,000. The managed fund is then sold in 2029 for $1.5 Million.

If you choose to opt in, then for the purposes of Division 296 your gross capital gain is calculated as the $1.5 million less an adjusted cost base of $900,000, being the value of the managed fund at 30 June 2026. With the 1/3rd discount applied, this amounts to a net capital gain of $400,000.

If you chose not to opt in, for the purposes of Division 296 there would be no capital gain as the sale price of $1.5 Million is equal to the original purchase of $1.5 Million.

Other funds (Non SMSF e.g. AustralianSuper, Hesta or Cbus)

Non SMSFs will not adjust cost bases of existing assets or make other adjustments that are specific to the actual investments held at 30 June 2026.

Instead, for the first 4 years (2026/27 – 2029/30 inclusive) there will be an arbitrary reduction (to be set out in the regulations) in the fund’s net capital gains. More detail will be provided in the regulations.

Case Studies

Frequently Asked Questions

Does Division 296 apply if my super balance is below $3 million?

No.

Division 296 only applies if your Total Superannuation Balance exceeds $3 million at 30 June of a financial year.

Individuals with balances below $3 million are not affected by this additional tax.

Does the tax apply to the entire super balance once it exceeds $3 million?

No.

The additional tax only applies to the portion of earnings attributable to the amount of super exceeding $3 million.

For example:

• If your balance is $4 million, only the earnings attributable to the $1 million above $3 million are relevant for Division 296.

Who actually pays the Division 296 tax?

The individual member is liable for the Division 296 tax.

However, individuals will generally have the option to:

• pay the tax personally, or
• elect for the ATO to release the amount from their superannuation fund.

The super fund still pays its normal tax (generally 15%).

This means two layers of tax may apply:

1. Tax paid by the super fund (normally 15%), and
2. Division 296 tax paid by the individual.

Are unrealised gains taxed?

No.

The current legislation provides that Division 296 applies only to realised earnings, such as:

• dividends
• interest
• rental income
• realised capital gains

This means increases in asset values that have not been realised are not taxed.

How is my super balance measured?

The test is based on your Total Superannuation Balance (TSB) at 30 June each year.

This includes the combined value of:

• all APRA super funds
• all SMSFs
• pension accounts
• accumulation accounts

The ATO already calculates this balance annually for transfer balance cap purposes.

What happens if my balance fluctuates above and below $3 million?

Division 296 applies only in years where your total super balance exceeds $3 million at 30 June.

If your balance later falls below $3 million, the tax will not apply in that year.

Will the $3 million threshold increase over time?

The legislation currently provides that the $3 million threshold will be indexed over time, although the exact indexation mechanism will depend on regulations and Treasury guidance.

Does this change the existing transfer balance cap?

No.

Division 296 is separate from the transfer balance cap rules.

The transfer balance cap determines how much can be moved into tax-free retirement phase, whereas Division 296 imposes additional tax on earnings attributable to balances exceeding $3 million.

When will the tax first apply?

Following passage through Parliament, the rules are expected to commence from 1 July 2026.

This means the first financial year potentially affected will be the 2026–27 financial year, with the first assessments likely to be issued after the ATO processes superannuation reporting for that year.

Should I withdraw money from super now?

Not necessarily.

While Division 296 may influence future planning for individuals with superannuation balances exceeding $3 million, decisions should only be made after careful modelling of the long-term tax implications.

CBC Partners can assist clients by modelling scenarios and discussing potential strategies.

What to Consider

For individuals with superannuation balances exceeding $3 million, the proposed rules may influence long-term planning decisions.

Possible areas to review include:

Contribution strategies

• Managing future concessional and non-concessional contributions
• Use of spouse contribution equalisation

Asset allocation

• Reviewing high-growth assets inside super
• Considering tax efficiency of different investments

Structure of investments

• Holding certain assets outside superannuation structures
• Use of family trusts or investment companies

Estate planning

• Managing intergenerational wealth transfers
• Reviewing superannuation death benefit strategies

Everyone’s circumstances will differ, and strategies should be considered carefully before any changes are made.

What Happens Next?

The legislation has now passed both Houses of Parliament.

The remaining step is Royal Assent, after which the legislation will formally become law.

The Division 296 rules are currently expected to commence from 1 July 2026, meaning the first financial year they may apply will be the 2026–27 financial year.

CBC Partners will continue to monitor any further guidance issued by Treasury and the ATO, including administrative guidance on how the tax will be calculated and collected.

If you would like us to model how Division 296 may apply to your circumstances, please contact our office.

Regards,

CBC Partners

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