Division 296: the $3 million super tax, as legislated

Division 296 imposes an additional 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 15% earnings tax already paid inside the fund. After several years of consultation and redrafting, the measure was legislated in 2026 and applies from the 2026–27 income year onwards.

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01Who is affected

Only individuals whose 30 June TSB exceeds $3 million are within scope. The threshold is per member, not per fund — a couple with $2.5 million each in a joint SMSF holding $5 million is unaffected. Because the thresholds are indexed under the final Act, bracket creep is far slower than under the original 2023 draft, which fixed the threshold permanently at $3 million.

02How the calculation works

Earnings for Division 296 purposes are calculated from the movement in the member's TSB across the year, adjusted for contributions and withdrawals, and then adjusted to exclude notional movements in asset values that have not been realised. The taxable proportion is (TSB − threshold) ÷ TSB, and the tier rate is applied to that share of realised earnings.

Worked example: a member starts 2026–27 with a $3.5m TSB and ends on $3.8m after $30,000 of net contributions, of which $180,000 of the movement is realised earnings (income and realised capital gains) and $90,000 is unrealised revaluation. Only the $180,000 is counted. Taxable proportion = ($3.8m − $3m) ÷ $3.8m = 21.05%. Division 296 liability = $180,000 × 21.05% × 15% = $5,684, in addition to the fund's own 15%.

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03Why the realised-earnings outcome matters

The most contested feature of the 2023 draft was that paper gains on assets the fund still held would have been taxed, exposing SMSFs with direct property or unlisted holdings to assessments in years with no cash inflow. The enacted version removes that exposure: a fund that revalues its business premises upward but sells nothing generates no Division 296 earnings from that revaluation. Liquidity planning still matters — realised gains from a single large disposal can create a lumpy assessment — but the structural cash-flow problem in the draft is gone.

04What SMSF trustees should do now

• Get a current TSB for each member, including defined benefit interests and balances in other funds — the test is per person, across all super.
• For funds near the thresholds, model realised gains before triggering a large disposal; timing a sale across financial years can change the assessment.
• Keep market valuations current and well evidenced — the TSB figure that drives the calculation comes straight from the fund's annual return.
• Review spouse contribution splitting and re-contribution strategies to equalise balances between members.
• Decide in advance whether the member will pay any assessment personally or elect a release from the fund, and keep the liquidity to support that choice.

05Paying the tax

The ATO assesses the member personally after 30 June 2027 for the 2026–27 year. The member can pay from personal funds or elect to have the amount released from one or more super funds, in the same way excess contributions tax releases work today. An SMSF that receives a release authority must pay it within the statutory period, so trustees of high-balance funds should hold a cash buffer for the first assessment cycle.