Division 296: the new $3 million super tax explained

Division 296 is the proposed federal measure that applies an additional 15% tax on the portion of a member's superannuation earnings attributable to a Total Super Balance (TSB) above $3 million. It sits on top of the existing 15% earnings tax inside super, so the marginal tax on the affected slice rises to 30%. The measure was introduced as part of the 2023–24 Budget process and is intended to take effect for the 2025–26 income year onwards, with the first assessments issued by the ATO in the following financial year.

Who is affected

Only individuals whose 30 June TSB exceeds $3 million are within scope. The $3 million threshold is per member, not per fund — so a couple with $2.5 million each in their joint SMSF is unaffected even though the fund holds $5 million. The threshold is not indexed in the current draft, which means more members will be drawn in over time through balance growth.

How the calculation works

The ATO calculates 'earnings' for Division 296 using a formula based on the movement in your TSB over the year, adjusted for contributions and withdrawals. Critically, the formula captures unrealised gains — increases in the market value of assets you still hold. The taxable proportion is then (TSB − $3m) ÷ TSB, and 15% is applied to that share of earnings.

Worked example: Member starts the year with a $3.5m TSB and ends with $3.8m, after net contributions of $30,000. 'Earnings' = $3.8m − $3.5m − $30k = $270,000. Taxable proportion = ($3.8m − $3m) ÷ $3.8m = 21.05%. Division 296 liability = $270,000 × 21.05% × 15% = $8,525. This is in addition to the 15% the fund already pays on realised earnings.

Why the unrealised gains piece matters

Because the formula taxes paper gains, SMSFs holding lumpy illiquid assets — direct property, unlisted shares, a business premises under an LRBA — can face a tax bill in a year where no asset was sold and no cash was generated. The member is personally assessed for Division 296 and can either pay from outside super or elect to release the money from the fund.

What SMSF trustees should do now

• Get a current TSB number for each member — many high-balance trustees are closer to $3m than they think once defined benefit interests are included.
• If you're close to the threshold, review whether to bring forward concessional and non-concessional contributions before the rules tighten.
• For SMSFs holding property, model the cash-flow impact of a Division 296 assessment in a strong market year — the fund may need a liquidity buffer.
• Re-examine spouse contribution splitting and re-contribution strategies to equalise balances under $3m where possible.
• Don't make irreversible structural changes (winding up an SMSF, selling property) until the legislation is finalised — the measure has been amended several times since introduction.

Status of the legislation

At the time of writing, Division 296 has been introduced into Parliament but key elements — the unrealised gains methodology, the threshold indexation, and the start date — remain politically contested. easySMSF tracks the bill closely and updates clients when material changes occur. Do not act on assumed final settings until Royal Assent.

Sources: Treasury — Better Targeted Superannuation Concessions consultation papers; Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023; ATO — Total super balance guidance (ato.gov.au).