Division 296: A Practical Guide to the New Superannuation Landscape
In the context of the current economic climate, long-term wealth management remains as crucial as ever. Renewed worries about inflation and interest rates have recently dampened Australian consumer sentiment. While broader market data—often tracked by reliable third-party providers like Bloomberg, LSEG Datastream, and the OECD—highlights ongoing economic shifts, our house view remains that the RBA is unlikely to pivot to rate hikes as quickly as the market currently expects. However, while we navigate these macroeconomic trends, legislative changes closer to home require careful, long-term planning.
After much Parliamentary debate, the Treasury Tax Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 and its Imposition Act received Royal Assent on 13 March 2026 and are now law. These Acts, commonly referred to as Division 296, reduce the tax concessions for individuals with larger superannuation balances.
Here is a practical breakdown of how Division 296 operates and what it means for structured, long-term Australian retirement planning.
The Core Mechanics of Division 296
Division 296 applies a new, additional tax on superannuation earnings for individuals with total superannuation balances over $3 million.
This additional tax sits on top of the existing 15% fund-level tax and is levied directly on the individual, not the superannuation fund itself. It applies specifically to the proportion of earnings that exceed an individual's threshold.
Understanding Total Superannuation Balance (TSB)
An individual's Total Superannuation Balance (TSB) is the combined value of all their superannuation interests across all funds in Australia.
For the 2026/27 financial year, the initial TSB is calculated at the end of the financial year on 30 June 2027. For all future years, a person's TSB reference amount is determined as the greater of their TSB just before the start of the year and their TSB at the end of that financial year. Using the higher of the two balances prevents the artificial reduction of balances just prior to June 30 to avoid liability.
The Thresholds and Rates
The Large Balance Threshold (over $3 million): The additional tax is 15%.
The Very Large Balance Threshold (over $10 million): The additional tax is 25%.
Effectively, these rates apply a 30% and 40% tax rate, respectively, to the proportion of fund earnings exceeding the applicable threshold in the accumulation phase (and 15% and 25% respectively in the retirement phase).
Both the $3 million and $10 million thresholds will be indexed to CPI from the 2027/28 financial year onwards (in $150,000 and $500,000 increments, respectively). Indexation is based on the CPI for the quarter ending December 31 just before the relevant financial year.
Calculating Earnings
For Division 296 purposes, earnings are defined as the fund's taxable income—the same income reported in the fund's annual tax return. This includes interest, dividends (including franking credit gross-ups), rental income, and realised capital gains after the one-third CGT discount. As outlined in the current legislation, unrealised capital growth is not included.
Different fund structures handle attribution differently:
Industry/Retail Funds: Calculate total earnings at a fund level and attribute them to members on a fair and reasonable basis.
Wrap Funds: Earnings are calculated on the specific parcel of shares, managed funds, and cash held by the individual.
SMSFs (Multiple Members): An actuarial certificate is required to determine attributable earnings.
SMSFs (Single Member): No actuarial certificate is needed. SMSFs also have a one-time option to reset the cost base of all CGT assets within the fund as at 30 June 2026.
Practical Examples
Example A: Balance over $3 million
Total superannuation balance (30 June 2027): $4.5 million
Attributable earnings: $150,000
Calculation: Tax = 15% x Earnings x [ (TSB - $3m) / TSB ] Tax = 15% x $150,000 x [ ($4.5m - $3m) / $4.5m ] Tax = 15% x $150,000 x 33.33% = $7,500 (Note: Only the portion of the balance exceeding the threshold (33.33%) is subject to the additional tax. The remaining earnings (66.67%) are not.)
Example B: Balance over $10 million
Total superannuation balance (30 June 2027): $12 million
Attributable earnings: $600,000
Calculation: Tier 1 Tax = 15% x $600,000 x [ ($12m - $3m) / $12m ] Tier 2 Tax = 10% x $600,000 x [ ($12m - $10m) / $12m ] Total Tax = (15% x $600,000 x 75%) + (10% x $600,000 x 16.67%) Total Tax = $67,500 + $10,000 = $77,500
Administration, Exemptions, and Death
Payment: Division 296 is not self-assessed. The ATO aggregates earnings across all funds, calculates the liability, and issues a notice of assessment to the individual. The individual may pay the liability personally, or elect to release funds from their superannuation to cover it.
Exemptions: Those exempt from this tax include children receiving a superannuation income stream (indefinitely for permanently disabled children; up until age 25 for non-disabled children) and individuals who have received a structured settlement contribution from a personal injury claim.
In the event of death: If a person dies during the initial 2026/27 income year, an explicit statutory exemption applies, and they have no Division 296 liability. From 2027/28 onwards, a liability may apply if their opening TSB exceeded $3 million, as the opening TSB will determine the reference amount for the year of death.
Long-Term Strategic Considerations
For individuals looking to manage their total superannuation balance prior to the first assessment on 30 June 2027, long-term strategic planning is key. Speculative, short-term approaches are rarely effective for retirement planning. Instead, sustainable alternatives could include withdrawals and re-contributions to a spouse's superannuation account (strictly within allowable limits), diversifying investments outside of the superannuation environment, or philanthropic endeavours, such as charitable donations or establishing structured giving funds.
For further information, or to book an appointment to ensure your business/trust affairs are in order, give Humble Goode Financial a call on 08 7477 8252 or email planning@hgfp.com.au.
General Advice Warning:The information on this website is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making an investment decision in relation to a financial product.