Better Targeted Super Concessions – Division 296 is one of the most significant changes to Australia’s superannuation tax rules in recent years.
Now law, the Better Targeted Super Concessions measure will apply from 1 July 2026 and is designed to reduce superannuation tax concessions for individuals with large total superannuation balances. The rules apply where an individual’s Total Superannuation Balance, known as TSB, exceeds the large super balance threshold, which is $3 million for the 2026–27 income year.
For individuals with super balances below the relevant threshold, Division 296 does not apply. For those above the threshold, an additional tax may apply to the portion of superannuation earnings that relates to the balance above the threshold.
This article explains what Division 296 is, who it affects, how the tax is expected to work, and what SMSF members and high-balance superannuation investors should be reviewing before the rules commence.
What is Better Targeted Super Concessions – Division 296?
Better Targeted Super Concessions – Division 296 is the new tax law introduced as part of the Australian Government’s Better Targeted Super Concessions measure.
The purpose of the law is to reduce the tax concessions available to individuals with very large superannuation balances, rather than changing the tax treatment of superannuation for everyone.
From 1 July 2026, individuals with a total super balance above $3 million may be subject to additional tax on earnings connected to the portion of their super balance above that threshold. A higher threshold also applies for very large balances above $10 million.
The new law is assessed at the individual level, not separately for each superannuation fund. This means a person’s total super balance is calculated across their Australian superannuation interests, including SMSFs, retail funds, industry funds and other relevant superannuation interests.
Who Will Be Affected?
Division 296 is aimed at individuals with large superannuation balances.
For the 2026–27 income year, the key thresholds are:
| Total Superannuation Balance | Division 296 impact |
|---|---|
| Up to $3 million | No Division 296 tax |
| Above $3 million | Additional tax may apply to earnings linked to the portion above $3 million |
| Above $10 million | A further additional tax may apply to earnings linked to the portion above $10 million |
Both thresholds are expected to be indexed in future years. The $3 million large super balance threshold is indexed in $150,000 increments, while the $10 million very large super balance threshold is indexed in $500,000 increments.
This is an important change from earlier versions of the proposal, where concerns had been raised about the threshold not being indexed.
How the Division 296 Tax Works
Division 296 does not apply a flat tax to a person’s entire superannuation balance.
Instead, the tax applies to a proportion of superannuation earnings that relates to the part of the individual’s total super balance above the relevant threshold.
In broad terms:
- The ATO determines whether an individual’s total super balance exceeds the relevant threshold.
- Superannuation earnings are calculated under the Division 296 rules.
- The portion of those earnings that relates to the balance above the threshold is identified.
- The additional Division 296 tax rate is applied to that portion.
For balances above $3 million and up to $10 million, an additional 15 per cent tax applies to the relevant earnings. This can bring the effective tax rate on those earnings to 30 per cent when combined with the standard 15 per cent superannuation fund tax rate.
For balances above $10 million, a further 10 per cent tax applies to the relevant earnings. This can bring the effective tax rate on earnings above that higher threshold to 40 per cent.
Example: Balance Above $3 Million
Assume an individual has a total super balance of $4 million.
The amount above the $3 million threshold is $1 million. That means 25 per cent of the individual’s super balance is above the threshold.
If the individual has $200,000 of Division 296 earnings, then 25 per cent of those earnings, or $50,000, would be linked to the portion of the balance above $3 million.
The additional Division 296 tax would be 15 per cent of $50,000, which is $7,500.
This is a simplified example only. The actual calculation may depend on the type of fund, the individual’s superannuation interests, fund reporting, adjusted earnings and any regulations that apply.
Does Division 296 Tax Unrealised Gains?
A key difference between the original proposal and the final law is the move away from the earlier unrealised gains approach.
The original proposal attracted significant criticism because it could have taxed growth in asset values even where assets had not been sold. The final framework is based more closely on realised earnings and existing tax concepts.
This is particularly important for SMSFs that hold property, business real property, unlisted assets or other illiquid investments. Under the final law, the focus is no longer simply on year-to-year movement in total super balance as a proxy for earnings.
However, SMSF trustees still need to pay close attention to SMSF property valuations, fund earnings, capital gains, reporting obligations and the way Division 296 earnings are calculated.
SMSFs and Division 296
SMSF members with balances near or above $3 million need to take the new rules seriously.
The ATO has stated that SMSFs with members whose Division 296 total super balance exceeds the large super balance threshold will need to report new information in the SMSF annual return from the 2026–27 financial year onwards.
For SMSFs, Division 296 earnings are expected to be calculated using fund taxable income, with adjustments for items such as assessable contributions, pension-related exempt income, non-arm’s length income and certain other amounts.
Where an SMSF has multiple members, earnings may need to be attributed between members. This may create extra administration, actuarial and reporting requirements for some funds.
SMSF trustees should also review whether any available small-fund CGT election or cost base reset mechanism is relevant to their fund before the rules commence. This should be considered with specialist tax and SMSF advice.
Total Superannuation Balance Changes
The new law also changes how total superannuation balance is determined for Division 296 purposes.
From 1 July 2026, an individual’s TSB will generally be calculated by reference to the value of their Australian superannuation interests. The ATO has indicated that the changes are designed to support annual valuation requirements and remove the link to transfer balance account concepts. Foreign superannuation interests are excluded from the individual’s TSB for these purposes.
This means individuals with more than one superannuation fund should not look at each account in isolation. The ATO will consider the combined value of relevant Australian superannuation interests.
When Does Division 296 Start?
Division 296 starts from 1 July 2026.
The first income year affected is the 2026–27 financial year. For that first year, the relevant balance test is expected to look at the individual’s total super balance at 30 June 2027.
From later years, the rules may look at the greater of the individual’s total super balance at the start or end of the financial year when determining whether the thresholds are exceeded.
This makes 30 June 2027 a key date for individuals who are near or above the $3 million threshold.
Can the Tax Be Paid from Super?
Division 296 tax is assessed to the individual, not directly to the superannuation fund.
However, individuals are expected to have the ability to pay the liability personally or elect to have the amount released from a nominated superannuation interest.
This is similar in concept to some other superannuation tax payment mechanisms, although the detailed process will depend on ATO administration and fund reporting requirements.
Why Property Investors and SMSF Members Should Pay Attention
Division 296 is especially relevant for SMSF members who hold property or other large assets inside super.
Property assets can cause a member’s balance to move above the $3 million threshold over time. Even where the tax calculation is no longer based on the original unrealised gains model, SMSF property owners may still need to manage valuation, liquidity, earnings attribution and future capital gains issues.
For SMSF property investors, the key planning questions include:
- Is the member’s total super balance close to or above $3 million?
- Does the fund hold property or other illiquid assets?
- Will the fund have enough liquidity to manage tax obligations?
- Is the current ownership structure still appropriate?
- Should the fund consider any transitional CGT or cost base options?
- Are pension, estate planning and member balance strategies up to date?
These questions should be reviewed before the rules commence, not after an assessment is issued.
Practical Planning Steps
Individuals with large super balances should avoid making rushed decisions, but they should start reviewing their position now.
Practical steps may include:
- Check your total super balance
Review all superannuation accounts, not just your SMSF. - Model your projected balance at 30 June 2027
Consider investment growth, contributions, pension payments, withdrawals and asset valuations. - Review SMSF property and illiquid assets
Property-heavy SMSFs may need specific liquidity and valuation planning. - Consider whether a small-fund CGT election is relevant
This may be important for SMSFs with assets that have built up gains before the start of the new rules. - Review estate planning
Large super balances can interact with death benefits, pension nominations and estate planning outcomes. - Seek specialist advice before restructuring
Withdrawing or restructuring assets may trigger tax, stamp duty, contribution cap, estate planning or asset protection consequences.
Division 296 Frequently Asked Questions
Is Division 296 law?
Yes. The Better Targeted Super Concessions measure is now law and applies from 1 July 2026.
Who does Division 296 apply to?
It applies to individuals whose total super balance exceeds the large super balance threshold, which is $3 million for the 2026–27 income year.
Does the $3 million threshold apply per fund?
No. The threshold applies at the individual level. A person’s relevant Australian superannuation interests are combined when calculating their total super balance.
What happens if my balance is below $3 million?
If your total super balance is below the relevant threshold, Division 296 does not apply.
Does Division 296 affect SMSFs?
Yes. SMSFs with members above the threshold will have additional reporting obligations from the 2026–27 financial year.
Does the tax apply to the whole super balance?
No. The tax applies to earnings linked to the portion of the balance above the relevant threshold.
Are the thresholds indexed?
Yes. The $3 million and $10 million thresholds are expected to be indexed in future years. The $3 million threshold is indexed in $150,000 increments and the $10 million threshold is indexed in $500,000 increments.
Can I pay the tax from my super?
The tax is assessed to the individual, but individuals are expected to be able to elect for the amount to be released from a nominated superannuation interest.
Key Takeaways
Division 296 is no longer just a proposal. It is now law and will apply from 1 July 2026.
The final law is materially different from earlier versions of the proposal. The most important changes are that the thresholds are indexed, a second $10 million threshold has been introduced, and the final design has moved away from the original unrealised gains model.
For most Australians, Division 296 will have no impact. For individuals with large super balances, especially SMSF members and property investors, it is now an important planning issue.
If your total super balance is close to or above $3 million, now is the time to review your SMSF structure, asset mix, liquidity, estate planning and valuation position.
Contact the team at Duo Tax to discuss SMSF property valuation support and how accurate property valuations may assist with your SMSF reporting and planning obligations.
