Large (over $3m per person) Superannuation Balances – Draft Law Released

Just before the Christmas break, Treasury released exposure draft legislation and explanatory materials for the new “Division 296” tax on large superannuation balances.

This follows the October announcement where the Government backed away from taxing unrealised gains and introduced the extra $10 million threshold as well as indexation of both the $3m and $10m thresholds.

While still in draft form, the rules are now much clearer. Key points are as follows:

• Start date and who is caught:
  • Division 296 is proposed to commence from 1 July 2026 (the 2026–27 income year)
  • The extra tax applies where an individual’s total superannuation balance (TSB) is above the following thresholds:
    • $3 million – an additional 15% tax on the earnings attributable to the portion above $3 million (meaning a possible total tax rate of up to 30%, but in reality, less due to the way it only applies to a portion of earnings based on how far in excess of $3m the TSB is)
    • $10 million – another additional 10% tax on the earnings attributable to the portion above $10 million (meaning a possible total tax rate of up to 40% for very large balances, but phasing in as above for balances that only just exceed $10m)
  • Both thresholds are proposed to be indexed with CPI ($150,000 steps for the $3m threshold, $500,000 steps for the $10m threshold).
  • For each year (from 2027–28 onwards), the formula to calculate the percentage of the new tax now uses the greater of your:
    • TSB just before the start of the income year; and
    • TSB at the end of the income year.
  • For the first year (2026–27) there is a transitional rule – the calculation is based only on your balance at 30 June 2027.
• How and who pays the tax:
  • Division 296 is assessed to the individual, not to the fund – similar in concept to Division 293.
  • The ATO will issue a separate Division 296 assessment, which is generally due for payment 84 days after the notice is issued
  • You can either:
    • Pay the tax from personal funds, or
    • Request a release from one or more super funds via a release authority (including special rules where amounts relate to defined benefit interests).
• Realised earnings only – no tax on unrealised gains:
  • The measure now clearly focuses on realised taxable earnings – that is, income and capital gains that are actually recognised under the normal tax rules
  • Super funds will calculate “Division 296 fund earnings” using taxable income concepts (including the normal 1/3 CGT discount for assets held > 12 months) and report each member’s share to the ATO
  • The ATO then works out each individual’s Division 296 tax, which is separate and in addition to the usual super fund taxes (e.g. 15% or 0% in pension phase where applicable).
• Transitional CGT relief – 30 June 2026 is a big valuation date:
  • For SMSFs there is a one‑off CGT cost‑base reset for Division 296 purposes:
    • The fund can elect to reset the cost base of all CGT assets held at 30 June 2026 to their market value on that date.
    • The election is all‑in – you can’t cherry‑pick individual assets.
    • The choice must be made in an approved ATO form by the due date of the fund’s 2026–27 income tax return and cannot be revoked.
  • The reset does not trigger a CGT event and does not change the asset’s acquisition date, so the normal super fund CGT discount rules stay intact.
  • Importantly, this adjustment only applies to assets held directly by the fund – it does not look through to assets owned by underlying companies/unit trusts.
  • Practically, this means:
    • Division 296 is intended to apply only to growth from 1 July 2026 onwards for funds that make the election.
    • Robust 30 June 2026 valuations across all fund assets will be critical.

What should you be thinking about now?

• If your total super is already above, or tracking towards, $3 million, this draft gives us a clearer picture of how the rules may apply to you.
• For SMSFs in particular, 30 June 2026 valuations and a decision on whether to use the CGT reset election will be important planning points.
• There is still a consultation process and Parliament to get through, so these rules aren’t law yet, but the framework now looks reasonably settled.
• If you think this might affect you, make an appointment with us to discuss your specific circumstance further.

We’ll keep monitoring developments and will be in touch with affected clients as the measure progresses. In the meantime, if you’d like to understand how Division 296 might impact your own situation, please reach out.

– Brad Sheaves

09.01.2026

This article is compiled as a helpful guide for your private information and is subject to copyright. We suggest that you do not act solely on the basis of material contained in this article because items are of general nature only and may be liable to misinterpretation in particular circumstances. We recommend that our advice be sought before acting on any of these crucial areas.