With Division 296 now in play, there is an additional tax on earnings attributable to super balances above $3 million. With this change, I am increasingly being asked: should I still be trying to build my super balance to $3 million – or should I be trying to stay below it?

The short answer is that $3 million should not automatically become your target or your limit.

While the new tax needs to form part of your planning, deliberately holding less in super does not necessarily leave you better off. Even with Division 296, super may remain one of the most tax-effective places to build and hold wealth.

The real question is not simply whether you should be above or below $3 million. It is whether your super, investment strategy and broader structures continue to support your financial, retirement and estate planning goals.

 

what happens once your super reaches $3m?

 

Division 296 applies an additional tax to a proportion of super earnings where an individual’s total super balance [TSB] exceeds $3 million.

For the first year only, the tax applies where your balance exceeds $3 million at 30 June 2027. From 1 July 2027 onwards, you may be captured if your balance exceeds the threshold at either the start or end of the financial year. A higher rate applies to the relevant proportion of earnings where the balance exceeds $10 million.

Importantly, this does not mean everyone with more than $3 million in super pays a flat 30% tax on all their earnings, or that everyone with more than $10 million pays a flat 40%.

The additional tax only applies to the proportion of earnings attributable to the part of the balance above the relevant threshold. The actual outcome will depend on your balance, earnings, pension position and other individual circumstances.

If you want a more detailed explanation of how the tax works, you can read my earlier blog, super changes for $3m+ balances. Or, if you want our accounting team to project out the expected tax in your personal situation, please do not hesitate to reach out.

 

does staying below $3m actually leave you better off?

 

Not necessarily.

Super can still be highly tax-effective above the threshold, so the better question is not how to avoid Division 296 at all costs. It is whether the overall outcome inside super remains better than the alternatives available outside it.

Having more in super and paying some additional tax may still leave you better off than deliberately limiting your balance.

It is easy to focus on the headline rate and assume that money should be moved out of super. But the right comparison is not Division 296 tax versus no tax. Your earnings outside of super also attract tax, and with the recent changes to the way capital gains and trust distributions are going to be taxed – you may just find super is still the best place for your investments.

If part of your super is already supporting a retirement-phase pension, your average tax rate may also be lower. This is why the advice will be different for everyone – there is no one-size-fits-all answer for people with large super balances.

Directing investments outside super or withdrawing eligible amounts simply to remain below $3 million may mean giving up some of the concessional tax treatment available within super, potentially leaving you with a worse net after-tax outcome overall.

 

should you change what you hold in super?

 

Division 296 may prompt a review of where particular assets are held, but tax should not be the only driver.

Some of the questions worth considering include:

  • Does the portfolio hold mainly income-producing assets, growth assets or a mix of both?
  • How volatile are the asset values, and could future growth push your balance above a threshold?
  • When are you likely to sell or realise gains on particular assets?
  • Is an asset intended to be sold during your lifetime, or retained as a family or legacy asset?
  • Would the asset receive a better overall tax, asset protection and estate planning outcome inside or outside super?

For example, moving a growth asset outside super may reduce future Division 296 exposure, but it could also mean future income and capital gains are taxed at a higher rate. There may also be transaction costs, capital gains tax, duty or ownership risks associated with changing the structure.

In some cases, the best decision may be to leave the investment exactly where it is.

 

will your fund have enough cash?

 

Division 296 creates a personal tax liability after the relevant super fund returns have been lodged. The individual can generally pay the liability personally or elect to have an amount released from super.

Either way, liquidity matters.

This is particularly important for SMSFs holding property, unlisted investments or other assets that cannot easily be sold. A fund may look strong on paper but still have limited cash available to meet tax, pension payments and other obligations.

Portfolio construction should therefore consider not only investment returns, but also when cash may be needed and how the fund will access it without being forced to sell an asset at the wrong time.

 

should you use the CGT cost-base reset?

 

SMSFs and Small APRA Funds may be able to elect to reset the cost base of eligible assets to their market value at 30 June 2026 for Division 296 purposes.

This election is not limited to people whose balances are already above $3 million. It may also be relevant where a balance is currently below the threshold but is growing quickly and could exceed it in the future.

However, the election is irrevocable and applies across all eligible assets – you cannot simply pick the assets that produce the best result. The reset also applies only for Division 296 purposes, which means funds may need to track multiple cost bases for the same asset.

Before making the election, you need to look at the fund as a whole. This includes unrealised gains and losses, likely disposal dates, projected member balances and the quality of the valuations available at 30 June 2026.

 

below $3m now? it could still affect you

 

Division 296 is not only relevant to people who have already crossed the threshold.

If your super is growing quickly or you hold high-growth or unlisted assets, it may be worth modelling where your balance could be in the years ahead. Remember, the $3 million threshold applies per person, not per couple.

That does not mean you should stop contributing or change investments simply to stay below $3 million. It means you have time to make considered decisions about contributions, pensions, asset ownership, liquidity and whether the cost-base reset may be appropriate.

 

tax is only part of the picture

 

Two people with the same super balance and the same investment return could still need very different advice.

Your strategy should take into account:

  • Your age and whether you are close to being able to access your super.
  • Whether some or all of your balance is already in pension phase.
  • Your health, life expectancy and expected retirement needs.
  • The taxable and tax-free components of your super benefits.
  • Your family circumstances and who you want to receive your super when you die.
  • Your broader estate plan and whether particular assets should remain in the family.

Estate planning is especially important. A strategy that produces a small tax saving now may create a less favourable outcome when a member dies, particularly when death benefit tax, reversionary pensions, blended families or asset protection concerns are involved.

Before moving an asset out of super, you also need to understand how ownership will be protected and controlled in its new structure – both during your lifetime and after your death.

 

don’t panic + don’t chase the number

 

So, should you be trying to get to $3 million in super? That depends on the retirement income you need, the assets you hold and the alternatives available to you. Should you deliberately stop at $3 million simply to avoid Division 296? Not necessarily.

The threshold is an important planning point, but it should not drive your entire strategy.

For some people, the new rules may support changes to their investment mix, pension strategy, contributions, liquidity planning or the structures used to hold particular assets. For others, super may continue to provide the best overall outcome despite the additional tax.

The first step is to understand your likely exposure and model the alternatives. That means considering the net after-tax outcome alongside investment returns, transaction costs, asset protection, access to funds and your estate planning intentions.

Don’t panic and don’t make changes based only on the headline tax rate. Get the numbers in front of you, consider the bigger picture and make decisions that support your long-term goals.

 

we’re here to help

Wondering whether the 3 million super tax should change what you’re aiming for? We can help you model your potential tax liability and compare your options against your retirement and estate planning goals.

For help understanding how Division 296 may affect your investment strategy, reach out to me or your usual businessDEPOT adviser.

 

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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.