For years the tax rules inside superannuation were simple to describe: 15% on earnings in accumulation phase, and nothing at all in retirement phase. From 1 July 2026 there’s a new layer for people with very large balances — Division 296, widely known as the “$3 million super tax”. If your total super sits above $3 million, an extra tax now applies to part of your earnings on top of the ordinary super tax.
Most Australians will never be affected — this targets a small number of very large balances. But it’s an important structural change, it’s timely, and it interacts with several other rules in the super system. This guide sits under our retirement planning pillar and connects to the broader tax settings in superannuation explained.
What Division 296 is
Division 296 imposes an additional tax on the earnings attributable to the portion of your total superannuation balance (TSB) above $3 million. It does not replace the existing tax on super earnings — it sits on top of it, and only on the slice of your balance over the threshold.
Key parameters:
- Extra 15% on earnings attributable to the balance between $3 million and $10 million.
- Extra 25% on earnings attributable to the balance above $10 million.
- It applies to your total super balance across all funds — including any self-managed super fund — measured at 30 June each year.
- The thresholds are indexed, so the $3m and $10m figures rise over time (check the current amounts at ato.gov.au).
The timeline
This is a new tax with a specific rollout:
- Became law: 13 March 2026.
- Applies from: 1 July 2026 (the start of the 2026-27 financial year).
- First assessment: FY2026-27.
- First bills payable: from 1 July 2027.
So the first income year that counts is 2026-27, and the ATO issues the first Division 296 assessments after that year ends, with amounts payable from mid-2027.
The realised-earnings basis
An earlier version of this policy proposed taxing unrealised gains — paper increases in value that hadn’t been sold. That drew heavy criticism. The version that became law on 13 March 2026 uses a realised-earnings basis: the tax applies to earnings that have actually been realised, rather than to unrealised paper gains. This is a meaningful difference, particularly for people holding illiquid assets such as property or private business interests inside their fund.
Because the calculation looks at actual earnings attributable to the excess balance, the effective rate depends on your fund’s realised returns for the year, not just on how much your balance exceeds $3 million.
Who is affected
Division 296 targets people whose total superannuation balance exceeds $3 million at year end. In practice that’s a small minority of Australians, and it’s most relevant to:
- Members of self-managed funds with large property or share holdings — see SMSF explained.
- High-income earners who have maximised contributions for many years.
- Anyone who has made large after-tax or downsizer contributions into super.
If your balance is comfortably under $3 million, this tax doesn’t apply to you — though because the threshold is indexed rather than frozen, it will keep pace with growth over time.
How it fits with the rest of the super tax system
Division 296 is best understood as the top of a ladder of super taxes:
| Rule | What it taxes | Rate |
|---|---|---|
| SG / concessional contributions | Before-tax contributions | 15% (contributions tax) |
| Division 293 | Concessional contributions for high earners | Extra 15% |
| Earnings in accumulation | Fund investment earnings | 15% |
| Division 296 | Earnings on balance over $3m | Extra 15% ($3m–$10m); extra 25% over $10m |
Division 293 tax already adds 15% to concessional contributions for high earners; Division 296 extends the same “extra tax on large balances” logic to earnings. Both sit alongside the contribution caps for 2026-27, which limit how much you can put in each year in the first place (concessional $32,500, non-concessional $130,000).
Planning considerations
If you’re near or over the threshold, this is firmly territory for professional advice, but some general themes:
- Liquidity. Because the tax can be assessed on your balance, funds — especially SMSFs — may need to hold enough liquid assets to pay a bill without a forced sale. This overlaps with SMSF investment strategy and liquidity planning.
- Contribution strategy. Pushing more into super may be less attractive once you’re above $3 million; the general transfer balance cap (rising to $2.1m in 2026-27) already limits how much sits tax-free in the retirement phase.
- Whether super is still the right structure. For very large balances, holding some wealth outside super — where different tax and capital gains rules apply — may become part of the conversation.
- Estate implications. Large balances often intersect with death benefit nominations and broader estate planning.
How the calculation works, in outline
The mechanics of Division 296 are what make it different from a simple flat surcharge. Rather than taxing a fixed slice of your balance, it works out what proportion of your total super sits above the $3 million threshold, and applies the extra tax only to the earnings attributable to that proportion.
In broad terms:
- The ATO looks at your total super balance at the start and end of the year, adjusted for contributions and withdrawals, to work out your earnings for the year.
- It calculates the proportion of your balance above $3 million — for example, someone with $4 million has a quarter of their balance over the threshold.
- The extra 15% (or 25%) applies only to that proportion of the earnings, on a realised basis.
Because the tax is tied to your actual realised earnings and to how far you sit above the threshold, two people with the same balance can face very different Division 296 bills depending on how their fund performed and how much they’ve withdrawn. This is also why liquidity planning matters: the bill can be paid personally or from the fund, so having accessible funds to meet it avoids a forced asset sale.
Why it’s controversial
Division 296 attracted significant debate on its way to becoming law. The original design taxed unrealised gains — increases in the paper value of assets that hadn’t been sold — which critics argued could force retirees with lumpy, illiquid assets (like a farm or a commercial property inside an SMSF) to find cash to pay tax on gains they hadn’t actually banked. The version that passed on 13 March 2026 moved to a realised-earnings basis, addressing much of that concern. The other ongoing debate is about the $3 million threshold: although it is indexed, some argue that over decades it will capture far more people than the small minority affected today.
Common misunderstandings
- “It’s a 30% tax on my whole balance.” No — it’s an extra 15% (or 25%) only on earnings attributable to the portion above the threshold.
- “It taxes paper gains.” The enacted law uses a realised-earnings basis.
- “The threshold will never move.” It’s indexed and rises over time.
- “I’ll get a bill in 2026.” The first assessment is for FY2026-27, payable from 1 July 2027.
Related reading
Understand the tax context in superannuation explained and its sibling Division 293 tax, check the annual limits in super contribution caps 2026-27, and if you run your own fund, see SMSF explained. It all connects back to the retirement planning pillar.
This article is general information only and not financial or tax advice; consider your own circumstances and speak to a licensed adviser or the ATO before acting.