Division 296 is now law: what the tax on large super balances actually taxes

If your superannuation balance sits somewhere north of $3 million, or you are the trustee of a self-managed superannuation fund holding property, the question you have been carrying since February 2023 now has an answer. Division 296 is law. It received Royal Assent on 13 March 2026 and first applies to the 2026-27 income year. The version that passed is not the version that was announced, and the difference is the part worth understanding before 1 July.

What passed, and when

Two Acts do the work.

The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 inserts Division 296 into the Income Tax Assessment Act 1997. It sets out how the tax is worked out, who is liable for it, and when it falls due. The Superannuation (Building a Stronger and Fairer Super System) Imposition Act 2026 does one narrow job: it imposes the tax and states the rate.

Both Bills finally passed both Houses on 10 March 2026. Both Acts were assented to on 13 March 2026, becoming Acts No. 8 and No. 9 of 2026, and were registered on the Federal Register of Legislation on 16 March.

Division 296 first applies to the 2026-27 income year, which begins on 1 July 2026. The first year that will ever be measured has not started yet.

Two thresholds, and two additional rates

The Act sets two thresholds. The large superannuation balance threshold is $3 million for 2026-27. The very large superannuation balance threshold is $10 million.

The Imposition Act sets the rates, and it is short enough to be quoted almost in full. The tax is 15% of your taxable superannuation earnings for the year. Where you also have a very large superannuation balance earnings component, the tax is that 15% plus 10% of the very large component.

Both rates are additional. The fund still pays its own 15% on earnings, so the headline outcome is roughly 30 cents in the dollar on the proportion of earnings attributable to the balance above $3 million, and roughly 40 cents on the proportion above $10 million. The ATO's guidance on the better targeted superannuation concessions states the same two thresholds and the same two additional rates.

One timing detail matters. For 2026-27, Division 296 applies only where your total superannuation balance at the end of the year exceeds the threshold. From 2027-28 onwards it applies where your balance exceeds the threshold either just before the start of the year or at the end of it.

What the final design taxes, and what it dropped

The original 2023 proposal measured earnings by the movement in your total superannuation balance across the year. That approach swept in growth you had not sold and had not received. A fund holding one commercial property could be assessed on a valuation.

That is not what passed. Treasury described the redesign as moving to a realised earnings approach that aligns to existing income tax concepts, and the Act builds it that way. A fund's Division 296 fund earnings begin with its taxable income or loss for the year. Assessable contributions come out, because contributions are not earnings. Net exempt current pension income goes back in. The fund's non-arm's-length component comes out, because it is already taxed at the top marginal rate. Each in-scope member is then attributed a share of that figure as their relevant superannuation earnings.

The practical consequence is straightforward. If your fund owns a commercial unit and does not sell it, the revaluation does not create an amount that Division 296 taxes. Rent does. A realised capital gain does. An unsold asset carried at a higher number does not.

There is a subtlety worth holding onto. Unrealised growth still lifts your total superannuation balance, and your total superannuation balance sets the proportion of your earnings that is taxed. So a rising valuation can still carry you over a threshold and increase the taxed share. It simply no longer produces a taxable amount of its own.

A worked example

Take an SMSF member at Robina whose fund holds a commercial unit and a share portfolio. This is an illustration, not a projection.

At 30 June 2027 their total superannuation balance is $4,000,000, up from $3,600,000 a year earlier. Because 2026-27 is the first year, only the balance at the end of the year counts — $4,000,000. The opening balance does not enter the calculation until 2027-28. The taxed proportion is ($4,000,000 − $3,000,000) ÷ $4,000,000, which is 25.00%.

Say the earnings attributed to them for the year come to $200,000 — rent, dividends, interest and one realised gain, worked back from the fund's taxable income. Their taxable superannuation earnings are 25% of $200,000, or $50,000. Division 296 tax is 15% of that: $7,500.

Now note what is not in the $200,000. The balance rose $400,000 across the year. Half of that is the $200,000 of earnings above. The other half is a $200,000 revaluation of the commercial unit, which was not sold. That revaluation helps carry the balance to $4,000,000, and so lifts the taxed proportion to 25%. It is not itself taxed.

At the second tier the two rates stack. On a $12,000,000 balance with $600,000 of earnings, the first calculation taxes 75.00% of earnings — $450,000 — at 15%, giving $67,500. The second taxes 16.67% of earnings, being $100,020, at a further 10%, giving $10,002. The assessment is $77,502.

The thresholds are indexed

Both thresholds are indexed annually in line with the consumer price index. The $3 million threshold moves in $150,000 increments and the $10 million threshold in $500,000 increments.

Increments mean a threshold holds still until CPI has moved far enough to lift it a whole step, then jumps. It is also worth being clear about what is indexed. The thresholds are indexed; your balance is not. Over a twenty-year horizon that distinction does a great deal of work, because a threshold tracking CPI will sit progressively lower against a balance compounding faster than CPI.

It is your tax, not the fund's

Division 296 is assessed to the individual. The Act makes you liable, not your trustee, in the same way Division 293 tax on concessional contributions is assessed to the individual. Funds report, the Commissioner assesses, and the notice comes to you.

Payment is due 84 days after the Commissioner gives you notice of the assessment. You can pay it from your own money, or elect within 60 days of the assessment to have one or more of your funds release the amount to the ATO. If you do neither, the Commissioner may issue a release authority to a fund. General interest charge runs on anything still unpaid after the due date.

Some people sit outside the regime entirely. Child recipients of a superannuation income stream are not liable, neither is anyone in respect of whom a structured settlement contribution has been made, and no liability arises for someone who dies during the 2026-27 income year. Where a defined benefit interest is involved and no end benefit has been taken, the liability is deferred to a Division 296 debt account and settled later.

What fund members and SMSF trustees should expect

The reporting obligation sits with funds. The Act adds a member's relevant superannuation earnings to the information a superannuation provider must report to the Commissioner, so for most people the first sign of Division 296 will be an assessment arriving rather than a form to complete.

An SMSF has more to do. The fund works out its Division 296 fund earnings for the year, attributes a share to each in-scope member, and reports it. For interests in small superannuation funds the Act does not set the attribution method itself; it leaves that to regulations, and expressly allows those regulations to require an actuary's certificate. That is annual-cycle work, and it lands alongside the rest of your fund's SMSF administration and tax compliance.

The Act also gives trustees of small superannuation funds a one-off choice. A fund may elect to treat the first element of the cost base of its CGT assets as their market value at the end of 30 June 2026, so that only growth from that date feeds into Division 296 fund earnings. The election must be in the approved form, must be made by the due date for lodging the fund's 2026-27 return, applies to every CGT asset the fund holds at that date, and cannot be revoked. Trustees who make it must keep cost base records for five years after the last possible CGT event. Whether it helps or hurts turns entirely on the fund's assets and what it expects to do with them, which is why it is a numbers question rather than a general one.

Larger APRA-regulated funds get a different transitional adjustment. Their net capital gains are multiplied by a factor of less than one, prescribed by regulations, for the 2026-27 to 2029-30 income years.

One more item for funds that borrow. In working out a total superannuation balance for Division 296 purposes, limited recourse borrowing amounts that would otherwise be added in are disregarded. If your fund holds property under an SMSF loan, the balance the thresholds are tested against is not the same balance you see elsewhere.

Between now and the first assessment

Nothing is payable yet. The first year measured begins on 1 July 2026 and ends on 30 June 2027. Funds report after that year closes, the Commissioner assesses once the reporting lands, and the notice follows. On that sequence the earliest Division 296 assessments cannot arrive until well into the 2027-28 year.

That leaves a long runway. The useful work in it is factual rather than strategic: knowing what your total superannuation balance actually is, knowing how your fund's earnings are composed between realised and unrealised movements, and knowing whether the cost base election is even a live question for the assets your fund holds.