The $3 Million Super Tax Starts 1 July 2026: What Division 296 Means for You and Your SMSF
Division 296 is now law and begins on 1 July 2026. It adds an extra tax on superannuation earnings for anyone with a total super balance above $3 million — with a second tier above $10 million. Here's exactly how it works, the realised-earnings model, the indexed thresholds, and what SMSF members should be doing before the first 30 June 2027 assessment.
The $3 Million Super Tax Starts 1 July 2026: What Division 296 Means for You and Your SMSF
After years of debate, Division 296 — the so-called "$3 million super tax" — is now law. It passed Parliament in March 2026 and takes effect on 1 July 2026, with the first assessment based on your total super balance at 30 June 2027.
If your superannuation balance is approaching or above $3 million — which is increasingly common for business owners, professionals and long-term SMSF members — this is one of the most important planning issues of the year. Here is how it actually works, and what to do about it.
How Division 296 works
Division 296 applies an additional tax on superannuation earnings for individuals whose total super balance (TSB) exceeds $3 million. It sits on top of the standard 15% tax already paid in the accumulation phase.
The final legislated design is two-tiered:
| Portion of your total super balance | Extra Division 296 tax on earnings | Total tax with standard 15% |
|---|---|---|
| $3 million – $10 million | +15% | 30% |
| Above $10 million | +25% | 40% |
Two features of the final law matter a great deal:
- It taxes realised earnings. The original proposal would have taxed unrealised gains (paper gains on assets you still hold). The final version was changed — funds report realised earnings for affected members, which removes the much-criticised prospect of being taxed on gains you have not actually banked.
- The thresholds are indexed. The $3 million threshold is indexed to CPI in $150,000 increments and the $10 million threshold in $500,000 increments — so the first increases would lift them to $3.15 million and $10.5 million.
How the taxable amount is calculated
Only the proportion of earnings attributable to the balance above the threshold is taxed — not your whole balance. In simplified form, for each tier:
Taxable proportion = (Total super balance − threshold) ÷ Total super balance
That proportion is then applied to your earnings for the year and taxed at the tier rate.
A worked example. Suppose your TSB is $4 million with realised earnings of $200,000 for the year:
- Proportion above $3M = ($4M − $3M) ÷ $4M = 25%
- Earnings caught = 25% × $200,000 = $50,000
- Division 296 tax = 15% × $50,000 = $7,500
That $7,500 is in addition to the standard 15% the fund already pays on its earnings. The maths scales up quickly for larger balances and for the portion above $10 million.
Who is affected — and who is not
Caught: any individual whose total super balance exceeds $3 million, whether held in an SMSF, a retail or industry fund, or a combination. Your TSB aggregates all your super accounts.
Exempt: structured settlement recipients, child death-benefit pensioners, and certain constitutionally protected funds.
A subtle but important point: because the tax is assessed on your individual total super balance, couples with one large balance and one small balance may be in a very different position from a couple who have evened their balances over time.
What SMSF members should be thinking about now
This is not a "deal with it in 2027" issue. The first assessment date — 30 June 2027 — is the balance that counts, and several of the most useful responses take time to implement:
- Valuations and record-keeping. SMSFs holding property or unlisted assets need defensible valuations. The realised-earnings model makes accurate fund accounting more important, not less.
- Contribution strategy. Does it still make sense to keep pushing money into super above $3 million, versus building wealth in other structures? For some, the answer changes.
- Balance equalisation between spouses. Splitting contributions or rebalancing over time can keep both partners under the threshold for longer — but this is done gradually, within contribution rules.
- Asset location. Which assets sit inside super versus a family trust or company now interacts with Division 296, the upcoming CGT reform, and your marginal tax rate. These cannot be looked at in isolation.
- Liquidity. A Division 296 liability is a real cash cost. Funds heavy in illiquid assets (like a single commercial property) need a plan to fund it.
Why this needs a coordinated review
Division 296 does not exist in a vacuum. It interacts with the 2027 CGT reform, the EOFY contribution rules, Division 293 for high earners, transfer balance caps, and estate planning. A change that helps with one can hurt another.
For most people affected, the right move is a single, coordinated review that models your position to 30 June 2027 and beyond — rather than reacting to each rule separately.
A note from CPL TaxWin
CPL International Group's TaxWin division advises SMSF trustees, business owners and high-net-worth individuals — exactly the people Division 296 is aimed at. We can model your projected total super balance, estimate the likely Division 296 cost, and weigh it against the alternatives, so the decision you make before 30 June 2027 is the right one.
If your super balance is near or above $3 million and you have not yet reviewed your position, now is the time.
Book a Division 296 / SMSF strategy review →
This article reflects Division 296 as legislated and information available as of June 2026. Thresholds are indexed and individual circumstances vary. General information only — please obtain personal advice from a registered tax agent or licensed adviser before acting.
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