In short

Division 296 passed Parliament on 10 March 2026 and takes effect 1 July 2026. It adds 15% tax on realised super earnings attributable to Total Superannuation Balance between $3 million and $10 million, and 25% above $10 million. Both thresholds are indexed. The contested unrealised-gains approach was dropped — only dividends, interest, rent, and realised capital gains count.

For most of the past two decades, Australian super has been the country's most generous tax-favoured wealth accumulation vehicle. Earnings within accumulation phase are taxed at 15%; in pension phase at 0% (subject to the Transfer Balance Cap). For high-balance members, the system has allowed substantial wealth to accumulate inside super at materially lower tax rates than equivalent wealth held in personal name.

The 2017 reforms began constraining high-balance super, introducing the Transfer Balance Cap that limits tax-free pension phase to (currently) $2.1 million. The 2023 federal budget proposed a further constraint — the "Better Targeted Superannuation Concessions" measure, enacted as Division 296 of the ITAA 1997. After a lengthy and contested passage, the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 passed the Senate on 10 March 2026 and takes effect from 1 July 2026, with the first assessments based on the 2026–27 financial year. The reform is among the most consequential changes to high-balance super taxation in recent years — and, unlike earlier drafts, it is now settled law rather than a moving target.

What is the headline mechanic?

Division 296 uses two thresholds for the 2026–27 income year: a large super balance threshold (LSBT) of $3 million and a very large super balance threshold (VLSBT) of $10 million. Members with Total Superannuation Balance (TSB) between $3 million and $10 million pay an additional 15% tax on the proportion of their earnings attributable to that band — a combined effective rate of 30% once added to the standard 15% fund earnings tax. Members with TSB above $10 million pay an additional 25% on the proportion of earnings attributable to the balance above $10 million — a combined effective rate of 40%.

Both thresholds are indexed annually, in $150,000 increments for the $3 million LSBT and $500,000 increments for the $10 million VLSBT, broadly preserving relativity with the Transfer Balance Cap. This is a reversal from the original 2023 proposal, which had the $3 million threshold fixed and unindexed.

Does Division 296 tax unrealised gains?

"Earnings" means realised earnings only — the most significant change from the original proposal. The original 2023–2024 draft measured "earnings" as the year-on-year movement in TSB, which inherently captured unrealised (paper) gains — the most contested feature of the whole reform, since it departed from the long-standing principle that capital gains are taxed on realisation. After sustained industry and crossbench pushback, the enacted legislation dropped this approach entirely. Division 296 earnings are now realised earnings only: dividends, interest, trust distributions, rent, and realised capital gains net of realised losses. A valuation increase on an asset that has not been sold, or a business that has not distributed income, is not captured.

The formula: for each tier the member's TSB spans, Division 296 tax = realised earnings × (proportion of TSB in that tier) × tier rate, summed across tiers.

  • Proportion in the $3m–$10m tier = (lesser of TSB or $10m, minus $3m) ÷ TSB.
  • Proportion above $10m = (TSB − $10m) ÷ TSB, where TSB exceeds $10m.

A worked example — single tier. A member has TSB of $5.5 million at year-end. Their realised earnings for the year — dividends, rent, interest, and realised capital gains — total $200,000. The proportion of TSB above $3 million = ($5.5m − $3m) / $5.5m = 45.5%. The member's entire TSB sits below $10 million, so the full taxable proportion falls in the 15% tier. Division 296 tax = 15% × $200,000 × 45.5% ≈ $13,650.

A worked example — both tiers. A member has TSB of $15 million and realised earnings of $900,000 for the year. The $3m–$10m slice is $7m of the $15m TSB (46.7%), so $420,000 of earnings is taxed at 15% = $63,000. The slice above $10m is $5m of the $15m TSB (33.3%), so $300,000 of earnings is taxed at 25% = $75,000. Total Division 296 tax = $138,000.

In both cases, the member can elect to release the tax from super or pay it personally.

What about illiquid assets?

Illiquid assets: a materially eased risk, not a solved one. The original unrealised-gains proposal was most punishing for SMSFs holding illiquid assets — a farm appreciating with rural land values, a business real property leased to a related family business, or unlisted private company shares. Under the old draft, a rising valuation alone created an annual tax bill with no cash generated to fund it. Under the enacted realised-earnings basis, that specific problem is gone: a valuation increase on an unsold farm, BRP, or private shareholding does not, by itself, trigger Division 296 tax.

The risk isn't eliminated, though. Rental income from a leased BRP, or dividends from private company shares, is realised earnings and still counts. And when an appreciated illiquid asset is eventually sold, the realised gain lands in a single year — a genuinely lumpy tax event for an asset that generated little cash along the way. The planning problem has shifted from "annual tax on unrealised movement" to "funding a large tax bill in the year of eventual sale" — narrower and more predictable, but still real for members holding concentrated illiquid assets.

What is the current legislative status?

Legislative status: settled. The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 passed both Houses without further amendment on 10 March 2026 and commences 1 July 2026. The first Division 296 assessments will be based on TSB and realised earnings measured over the 2026–27 financial year (1 July 2026 to 30 June 2027), with ATO assessments issued after that year closes. For advisers and high-balance clients, the planning conversation can now proceed on confirmed rules rather than a range of possible outcomes.

Who is affected?

The measure targets a small cohort of the highest-balance super members, broadly the same group originally estimated at around the top 0.5% of balances, now split across two bands:

  • High-balance SMSF members with substantial property or business real property holdings, particularly those in the $3m–$10m band.
  • Senior public sector retirees with large defined benefit and accumulation balances combined.
  • Recently retired senior executives with substantial super.
  • A smaller number of ultra-high-balance members above $10 million, who face the steeper 25% additional rate on the balance above that threshold.

Less directly affected:

  • Members with TSB below $3 million (no Division 296 tax applies).
  • Members whose super earnings are dominated by unrealised growth with little realised income — the cash-flow exposure for this group is now much lower than under the original proposal.

What strategic responses are available?

Withdraw to bring TSB below $3m (or $10m). Partial commutation back to accumulation and withdrawal can reduce TSB below a threshold. The trade-off: withdrawn funds outside super are taxed on earnings at marginal rates — often higher than the post-Division-296 effective rate within super.

Equalise with spouse. Each spouse has their own $3 million and $10 million thresholds. Couples with balanced positions may avoid the tax entirely, or keep both partners in the lower tier. Contribution splitting and spouse contributions can shift balances, within contribution cap and TSB rules.

Manage realisation timing, not just asset mix. Because only realised earnings count, the urgency to restructure illiquid, non-income-producing holdings purely to avoid an annual paper-gains tax has eased. What still matters: whether an asset generates realised income (dividends, rent) that will be assessed each year, and planning the timing of any eventual sale of an appreciated asset so a large realised gain doesn't land in a year that also carries other high-earnings events.

Annual review against the indexed thresholds. With the law settled, the sensible approach is ongoing monitoring rather than one-off pre-emptive restructuring — track TSB against the indexed $3m and $10m thresholds each year, and model realised-earnings exposure as part of the normal investment and drawdown review.

What is the wider trajectory?

Division 296 is part of a broader pattern. The 2017 reforms introduced the Transfer Balance Cap. Total Superannuation Balance thresholds limit non-concessional contributions for high-balance members. Excess contribution caps discourage large deposits. Together, the framework has moved toward a more sharply targeted super system where the tax concessions favour middle-balance members over the wealthy — now formalised, for the highest balances, as a two-tier, realised-earnings, indexed regime rather than the broader unrealised-gains approach first proposed.

For high-balance members, the practical message is the same as it has been: super remains valuable, but its concessions are increasingly capped above $3 million, and more sharply above $10 million. Beyond a certain balance, tax-effective wealth management requires a broader perspective — non-super investment structures, family trusts, investment companies, and personal-name holdings all become relevant for the upper portion of household wealth.

What does the advice framework look like?

For high-balance super members:

  • Confirm current TSB against the indexed $3 million (LSBT) and $10 million (VLSBT) thresholds for the relevant financial year.
  • Project TSB position over 5–10 years, including expected realised earnings.
  • Identify when (or whether) either threshold is crossed.
  • Model the Division 296 tax exposure under the two-tier, realised-earnings formula.
  • Consider strategic responses — withdraw, equalise, manage realisation timing.
  • Compare alternative structures for the portion of wealth above the relevant threshold.
  • Review annually rather than restructuring once against a settled but evolving (indexed) threshold.

The reform is consequential and technical, but no longer a moving target. The settled law is realised-earnings-based, two-tiered, and indexed — a materially different (and for illiquid-asset holders, materially lighter) regime than the original 2023 proposal. For affected clients, the planning conversation is about the actual rules now in force, not the range of possibilities that preceded them.

Sources

Key takeaways

  • Division 296 is now enacted law, effective 1 July 2026, with the first assessments based on the 2026-27 financial year.
  • The tax applies to realised earnings only — dividends, interest, rent, and realised capital gains — not unrealised valuation movements.
  • There are two tiers: an extra 15% on earnings attributable to TSB between $3 million and $10 million, and an extra 25% above $10 million.
  • Both the $3 million and $10 million thresholds are indexed annually, in $150,000 and $500,000 increments respectively.
  • Each spouse has their own $3 million and $10 million thresholds, so equalising balances between spouses can reduce or avoid the tax.

Frequently asked questions

Has the Division 296 super tax passed into law?

Yes. The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 passed the Senate on 10 March 2026 and takes effect from 1 July 2026, with the first assessments based on the 2026-27 financial year.

Does Division 296 tax unrealised (paper) gains?

No. The final legislation dropped the original unrealised-gains approach after industry pushback. Division 296 now applies only to realised earnings — dividends, interest, trust distributions, rent, and realised capital gains net of realised losses.

How much extra tax does Division 296 add?

An additional 15% on the proportion of realised earnings attributable to Total Superannuation Balance between $3 million and $10 million, and an additional 25% on the proportion attributable to balance above $10 million — combined effective rates of 30% and 40% once added to the standard 15% fund tax.

Are the Division 296 thresholds indexed?

Yes. The $3 million threshold is indexed in $150,000 increments and the $10 million threshold in $500,000 increments, broadly preserving relativity with the Transfer Balance Cap.

A note on advice. This article is general information only and doesn't account for your personal circumstances. Everyone's situation is different — before acting, it's worth talking it through with a licensed adviser who knows your full picture.