Division 296: What the First Year Means for $3m+ Balances

The first transitional year of Division 296, the 2026-27 financial year, is tested against a single balance snapshot at 30 June 2027 rather than earnings accrued through the year, and any resulting tax liability is not assessed until the 2027-28 year. Division 296 has now passed Parliament, having cleared the House of Representatives on 5 March 2026 and the Senate on 10 March 2026, and it commences from 1 July 2026. It introduces an additional tax on the earnings attributable to large superannuation balances. For trustees and members with a total super balance approaching or above $3 million, understanding how that first year is actually tested is worth doing well before the test date arrives.

The thresholds and the rates

Division 296 applies an extra tax on top of the 15% a fund already pays on its earnings. For an individual with a total super balance above $3 million, the earnings attributable to the amount over that threshold attract a further 15%, taking the combined rate to 30%. Above $10 million, the further tax rises to 25%, taking the combined rate to 40% on earnings attributable to the balance above that higher threshold, as set out on the ATO's Division 296 tax page. Both the $3 million and $10 million thresholds are indexed to CPI, so they will move over time rather than staying fixed indefinitely.

Realised earnings, not unrealised gains

The version that passed differs from the government's original 2023 proposal in one significant respect. Division 296 taxes realised earnings, meaning dividends, interest, rent and gains that have actually been realised through a sale, rather than paper gains on assets still held. This was the most contested element of the original design, and its removal means a member is not taxed on a gain they have not yet locked in by selling the underlying asset. Where an asset has been held for more than twelve months, the standard one-third capital gains tax discount continues to apply before the Division 296 calculation is made.

Who Division 296 applies to

Division 296 is a tax on the individual, not on the superannuation fund itself. That distinction matters for SMSF trustees in particular: the fund does not pay Division 296 tax directly, but an SMSF is required to calculate its Division 296 fund earnings for the year and report the relevant member's attributable share to the ATO, because that figure feeds into the ATO's assessment of the individual member. Full detail on that reporting obligation is set out in the ATO's guidance on Division 296 tax for SMSFs. It also means a member's Division 296 position depends on their total super balance across every fund they belong to, not just the balance held in any one SMSF, so a member with interests in more than one fund needs their full position looked at together rather than fund by fund.

How the transitional first year is actually tested

For 2026-27, the test is based on an individual's total super balance at 30 June 2027, the end of that financial year. That single date is what determines whether Division 296 applies for the year, which is a materially different exercise from the calculations that follow in later years once the earnings-based mechanism is fully operating, as the ATO explains in how Division 296 tax is calculated. The first Division 296 tax liability arising from this transitional year is expected to be assessed and become payable in the 2027-28 year, not immediately at 30 June 2027 itself.

Because the transitional test looks at a balance on a single date rather than earnings accrued over the year, a member's position at 30 June 2027 can be affected by things that happen well before that date, including contributions made earlier in the year, pension payments drawn down, and the value of fund assets on that day. None of that changes the underlying $3 million threshold, but it does mean the relevant figure is not fixed until the year actually ends.

What this means in practice before 30 June 2027

• Members with a total super balance near $3 million should know where they currently sit, rather than finding out at the test date.
• SMSF trustees should understand the fund's new reporting obligation to the ATO for in-scope members, separate from the fund's own tax return.
• Decisions about contributions, including how the concessional contributions cap for 2026-27 fits into the picture, pension drawdowns or asset sales inside an SMSF should be considered with the 30 June 2027 test date in mind, without treating any one action as a way to avoid the tax altogether.

Talk to us before the test date, not after

Division 296 is now settled law, not a proposal, which means the planning conversation can move from "if" to "how it applies to your fund". Because the first test is a single balance snapshot rather than an ongoing calculation, there is genuine value in understanding your position well ahead of 30 June 2027. We are not able to give advice on an individual's specific circumstances in an article like this one, but we can work through what Division 296 means for your fund directly.

Disclaimer: This article contains general information only and does not constitute financial, legal or tax advice. It has been prepared without regard to your objectives, financial situation or needs. Tax and superannuation laws change frequently, and the information in this article may not reflect the current law or may become inaccurate over time. Before acting on anything in this article, you should consider its appropriateness to your circumstances and seek advice from a registered tax agent or qualified adviser.