The Better Targeted Superannuation Concessions measure, known as the Division 296 tax, is now law and takes effect from 1 July 2026. For those with large super balances, it is important to understand what the new tax does, why it has been introduced, and the practical steps you and your financial adviser should consider.
The purpose of the tax
Division 296 is designed to make superannuation tax concessions fairer and more sustainable. Rather than changing the way super is taxed for everyone, the law targets a small group of people with large super balances, ensuring they pay more tax on the portion of investment earnings that relates to those balances.
Who it applies to, thresholds and rates
This new measure starts from 1 July 2026, with the first year of operation being 2026–27. It applies to individuals with total superannuation balances (TSBs) in excess of the following thresholds:
- large balance threshold, $3.0 million
- very large balance threshold, $10.0 million
Both thresholds will be indexed in future years.
This means the overall tax imposed on superannuation fund earnings will be as follows:
| TSB | Div 296 tax rate on earnings relating to this band | Total effective tax on those earnings |
|---|---|---|
| Up to $3,000,000 | 0% | 15% (standard fund tax) |
| $3,000,001 to $10,000,000 | 15% | 30% (15% + 15%) |
| Above $10,000,000 | 25% | 40% (15% + 25%) |
Certain people will be excluded from having this new tax imposed on them, even if their TSB exceeds the threshold. Excluded persons include child recipients of death benefit pensions and individuals who have made structured settlement superannuation contributions from a personal injury compensation payment.
Where a person dies, they will no longer have a TSB. Other than in the first year of operation, being 2026–27, there can still be a Division 296 tax assessment for the financial year in which they die if they had a TSB of more than $3 million at the start of the year. As superannuation is not an estate asset, this should be considered as part of a review of the individual’s estate plan.
How the tax works
From an SMSF perspective, the fund will calculate its Division 296 earnings. This is based on its taxable income, with adjustments for assessable contributions, net exempt income attributable to pensions, any non-arm’s length income, which is already taxed at 45%, and income relating to investments in a pooled superannuation trust. There may also be adjustments for capital gains made on the disposal of fund assets if the fund has made the relevant small fund CGT election.
The calculated Division 296 superannuation earnings are then attributed to fund members using an attribution percentage calculated by an actuary. This information will be used by the ATO to assess the member’s Division 296 tax liability.
Division 296 tax is levied on the individual, not the superannuation fund. The tax can be paid either by the individual or by electing for the amount to be deducted from their nominated superannuation interest.
Next steps
If your total super balance is near, or already above, the relevant thresholds, it is important to contact your financial adviser to arrange tailored modelling and discuss whether the small fund CGT election is suitable. Early planning will help you manage cash flow, reporting, and any actuarial requirements efficiently.
This is also an opportunity to review the suitability and benefits of holding investment capital in a superannuation structure compared with alternative structures for amounts above the large balance threshold.
If you have questions or concerns, please do not hesitate to contact our office to speak to one of our team.
