Division 296 Tax

BySLS Advisory

Amidst the noise of the recent Federal Budget announcements, an important and contentious superannuation measure is set to commence shortly.

From 1 July 2026, individuals with a total superannuation balance (TSB) exceeding $3 million will be subject to the new Division 296 tax.

This tax applies to a portion of superannuation earnings and is assessed to the superfund member personally, rather than the fund itself. However, members may elect to have their superfund pay the liability from their account balance.

How the tax works

The new rules introduce two thresholds and marginal tax rates based on an individual’s total superannuation balance.

1. TSB of $3 million or more

A 15% tax will apply to the proportion of earnings attributable to the amount above $3 million.

For example, if your TSB is $3.2 million, the taxable proportion is calculated as:

$200,000 ÷ $3.2 million × earnings × 15%

2. TSB of $10 million or more

An additional 10% tax will apply to the proportion of earnings attributable to the amount above $10 million.

Both thresholds will be indexed to the Consumer Price Index (CPI), increasing in increments of $150,000 for the $3 million threshold and $500,000 for the $10 million threshold.

Timing and calculation

For the 2026–27 financial year, the tax will be calculated based on your TSB as at 30 June 2027.

In future years, the calculation will be based on the greater of your opening or closing TSB for the financial year.

Interaction with existing taxes

Division 296 is an additional tax and does not replace existing superannuation tax obligations.

Existing taxes that may still apply include:

  • 15% tax on superannuation fund earnings
  • Division 293 tax (15%) on concessional contributions for individuals with income and super contributions exceeding $250,000

Capital gains treatment

Following revisions to the original proposal, Division 296 will apply only to realised capital gains and not unrealised gains.

The Government has also introduced a cost base reset option.

Superannuation funds may elect to reset the cost base of all assets to their market value as at 30 June 2026.

This creates two separate capital gains tax calculations:

  • One for standard tax purposes
  • One specifically for Division 296 purposes

The intention of the reset is to increase the cost base of assets and potentially reduce future Division 296 liabilities.

Key consideration

The cost base reset election applies on an all-in basis. Superfunds cannot selectively choose which assets to reset.

While beneficial in some circumstances, the election may reduce the cost base for certain assets, potentially resulting in higher Division 296 tax outcomes for those investments.

What you should do

Given the complexity and potential impact of these changes, we recommend:

  • Reviewing your superannuation balance and asset mix before 30 June 2026
  • Seeking tailored advice to determine whether the cost base reset election is appropriate for your circumstances
  • Considering other planning strategies that may help manage future tax liabilities

Please do not hesitate to contact us if you would like to discuss how these changes may affect you.

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