Late yesterday, the Senate passed the Treasury Laws Amendment [Building a Stronger and Fairer Super System] Bill 2026, confirming the introduction of the long-discussed Div 296 tax on large super balances. Once Royal Assent is received, the rules will take effect from 1 July 2026.

As one of the most talked about tax proposals for several years, this legislation has gone through multiple revisions. While the final version is not quite as severe as earlier proposals, it still represents a significant change for individuals with large super balances now and in the future. 

While initial studies indicated this wouldn’t impact many Australians, markets have moved a lot over the past 3 years. Even if you aren’t impacted now, there might still be things to consider around your super as a result of these changes. However, for those with total super balances above $3 million, it introduces an additional layer of tax and compliance on super earnings. 

This is what you need to know about the final legislation. 

 

1. extra tax on super earnings for members with balances $3m+ 

 

Div 296 introduces an additional tax on individuals whose ‘total super balance’ [TSB] exceeds $3m at the start or end of a financial year. The threshold applies per person based on the running balance of their member account and includes all super accounts combined [SMSF, retail, industry, etc.].

There is a small concession in the first year, where the tax will only apply if your balance exceeds $3m at 30 June 2027, even if your balance exceeds $3m on 1 July 2026. This concession gives you time to consider whether you want to withdraw some of your super before 30 June 2027 to reduce your balance below the cap. 

Please note: all the normal restrictions for accessing your super still apply. Do not make any withdrawals until you have sought advice on your personal situation!

 

2. unrealised gains aren’t taxed, but asset values still matter 

 

Earlier versions of the proposal calculated earnings based on movements in member balances, which effectively meant unrealised gains could be taxed. 

Following significant industry feedback, this approach was removed from the final legislation. Div 296 now focuses on realised earnings, meaning increases in asset values are generally not taxed until the asset is sold. 

While the final legislation does not directly tax unrealised gains, an increase in the value of a property [for example] is still relevant and could still push you over the threshold to pay the Div 296 tax. 

The legislation does not use the normal tax definition of earnings. Instead, it uses a definition that is broadly based on realised investment income. 

 

Div 296 fund earnings =

relevant taxable income or loss

− assessable contributions

+ net exempt current pension income [net ECPI]

− non‑arm’s length component

+ pooled superannuation trust component. 

 

If you have a super balance over $3m or $10m in an industry fund, each fund will have its own methodology for allocating earnings to a member to determine the tax due under the new Div 296 rules.

Due to the complexity of these funds in calculating actual earnings per member, we expect this will be very hard for you to control or plan for in advance of the fund providing this allocation of earnings to you. 

 

3. CGT cost-base reset [only available to small funds like SMSFs]

 

A formal CGT cost-base reset exists for small superannuation funds, but it applies only for Div 296 purposes. If you elect, the CGT cost-base for Div 296  can be reset to the value of the asset as at 30 June 2026.  This ensures you only pay Div 296 tax on realised gains above the value of the assets as at that date. 

It applies where a CGT event happens to an asset that the fund held at the end of 30 June 2026 and continuously from 1 July 2026 until immediately before the CGT asset is sold. The cost base reset only applies to assets directly held by the fund, and not assets held, say, in a unit trust owned by the fund. If your fund holds assets indirectly through a unit trust or company, you should seek further advice about the CGT impact.

The trustee must make the choice in the approved form, and this will apply to all CGT assets held at the end of 30 June 2026.

Please note: this election isn’t restricted to people who are already impacted by the tax. If your current super balance is below $3m but projected to exceed this in the future, you may still wish to elect to apply the CGT reset.

 

making the election:

  • The choice can be made only during a specified period starting on commencement and ending on the due day for lodging the fund’s 2026–27 income tax return. 
  • The choice has to be made across all assets. 
  • You cannot pick and choose which ones to apply it against, so it is worth looking at the overall position of your fund at 30 June 2026 before making a decision. 
  • The choice cannot be revoked. 

 

For Div 296 purposes, “the first element of the cost base or reduced cost base is taken to be the asset’s market value as at the end of 30 June 2026”, and other elements are effectively reset [taken to nil].

Importantly, it does not change the cost for CGT purposes overall – only for the Div 296 tax. This means you may now need to keep track of multiple cost bases for the same asset. 

If you have an SMSF with property or unlisted investments held in the fund, valuations are going to become increasingly critical. At the very least, you will want to get valuations as at 30 June 2026. 

Expect more ATO compliance reviews targeting valuations, too! 

 

4. the tax is on the portion of ‘earnings’ above $3m 

 

The tax is going to apply to the portion of earnings attributable to the portion of the super balance that exceeds $3m. 

If, for example, the super balance is $4m, $1m of the amount exceeds the threshold, meaning that 25% [$1m of $4m] of earnings will be subject to the additional tax. 

 

5. the additional tax rate is 15% up to $10m and 25% over $10m 

 

If your super balance is above $3m, the earnings relating to that portion of your super will be taxed at an additional 15%, on top of the existing tax on super fund earnings [while in accumulation phase] of 15% [or less for earnings on realised capital gains].

If your super balance is above $10m, the earnings relating to that portion of your super will be taxed at an additional 25%. 

Because of the way the tax is calculated, it isn’t a flat rate. It’s not as simple as saying that you will pay 30% on earnings if you are over $3m or 40% on earnings if you are over $10m. Instead, the outcome will vary depending on individual circumstances.

We encourage anyone likely to be impacted by this new tax to reach out for advice and draft calculations, to understand the likely tax impact on them before making any decisions around their super. For many people, the additional tax incurred may still be lower than the tax rates they would pay in any other entity outside of super. 

 

example

If someone has $11m in super and earns $500k in a year:

  • portion above $3m is taxed with additional 15% [$7m ÷ $11m = 64% x $500k x 15% = $47,727]
  • portion above $10m is taxed with additional 25% [$1m ÷ $11m= 9% x $500k x 25% = $11,364]
  • plus the normal super fund income tax of 15% = $75,000 
  • total tax payable on the $500k of earnings = $134,090 

This equates to a tax rate of approximately 26.8%.

If you have a portion of your super balance in pension phase, the average tax rate would be even better! 

 

6. tax is assessed personally, not within the fund

 

Unlike most super taxes, Div 296 is not paid by the super fund automatically and works in a similar way to how Div 293 [the extra contribution tax for high income earners] is assessed. 

Instead: 

  • the ATO calculates the liability, and 
  • the individual receives a tax assessment. 

The individual can either: 

  • pay the tax personally, or 
  • elect to have the amount released from their super fund.

 

7. estate planning considerations

 

Div 296 should be considered as part of any estate planning review. The revised version of the tax applies in the year of death, which is a change from the original approach. 

There may also be situations where a couple is not affected by the tax because both partners’ balances are below $3m, but on the death of one partner, the survivor’s balance may be pushed over $3m. There could be some tricky outcomes when it comes to dealing with reversionary pensions. 

It is important to get advice to ensure these issues are managed appropriately as part of your broader estate planning strategy.

 

8. the $3m and $10m thresholds are indexed with CPI 

 

The $3m and $10m thresholds are both indexed each year with CPI [consumer price index] in $150k increments for the $3m threshold and $500k increments for the $10m threshold. 

Whilst indexation helps, we expect that over time, this means more and more people will be captured by the rules, as investment growth pushes balances higher. However, with restrictions on contributions to super, younger Australians were already unlikely to have more limited balances within their funds. So it will be interesting to see how this tax plays out over the longer term. 

 

9. super remains very tax-effective + still great for asset protection 

 

Even with Div 296 in place, super is still an extremely tax-efficient environment for many high-wealth investors.

Whilst any additional tax is never welcomed, it is still likely that your superfund is still the best place to hold your current investments. 

Any changes you plan to make should be done after considering your overall situation, including your estate planning, and any external business risks you may have outside of super. 

The tax is still very concessional, and if you are impacted by these rules, your tax rate outside super will likely still be higher.

 

we summarise the different applicable tax rates in ascending order: 

  • 0% = earnings when super in pension phase 0% [subject to other rules] 
  • 15% *  = earnings in super in accumulation phase with a balance of less than $3m
  • 25% = company tax rate [trading base-rate entity], but additional tax on payment of dividends 
  • 30%** = earnings in super in accumulation phase for the portion of earnings between $3m and $10m 
  • 30% = company tax rate [non-trading and/or not a base-rate entity], but additional tax on payment of dividends 
  • 40%*** = earnings in super in accumulation phase for the portion of earnings above $10m 
  • 47% = top individual marginal tax rate [including Medicare levy]

*10% on capital gains realised after owning the asset for more than 12 months 

**20% on capital gains realised after owning the asset for more than 12 months 

***26.67% on capital gains realised after owning the asset for more than 12 months 

 

Even with these changes, super remains a very tax-effective environment. 

 

10. review asset structure within your SMSF

 

Investment mix may become increasingly important under the new regime. Consider whether you want to hold growth assets or income-producing assets within the superannuation environment going forward. 

Importantly, everyone’s situation is different, and you need to speak to your financial advisor to get advice specific to your circumstances. 

 

don’t panic! 

 

There is nothing in this legislation that means you need to completely restructure your SMSF. 

Get the advice and make good commercial decisions based on your long-term goals – tax is not the only consideration! 

 

what do you need to do? 

 

There may be planning opportunities to consider [even if your balance is currently below $3m], such as: 

  • Reviewing asset valuations. 
  • Considering whether the CGT cost-base reset election should be made. 
  • Reviewing contribution strategies. 
  • Reviewing pension structures. 
  • Ensuring accurate reporting of super balances. 
  • Considering your estate planning position and where you want assets held for the long term. 

It’s important to get advice on your specific situation and consider if any structural changes or strategic withdrawals may suit your circumstances. 

 

we’re here to help

 

Have any questions? Feel free to reach out to me, your usual contact at businessDEPOT, or Neal Dallas of our wealth advisory team.

 

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general advice disclaimer

Business Depot Financial Planning BNE Pty Ltd ABN 27 644 561 400 and its advisors are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL No. 357306.

The information provided on this website is a brief overview and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision. Please consult with an appropriate professional before making any decision.