Div 296 Tax Is Now Confirmed and Commencing from 1 July 2026

After significant discussion and changes over the years, the Div 296 tax has now passed Parliament.

The new rules will commence from 1 July 2026, with the first assessment applying to the 2026–27 financial year based on super balances and earnings to 30 June 2027.

While the measure will only affect a small portion of Australians, it is an important change for individuals with large superannuation balances, and it is something worth understanding well ahead of time.

At Yield, our advice team have been actively working through the impact of the new tax on our clients and there is no one size fits all solution.

Decisions about whether to withdraw a portion of super, utilise once off CGT Cost Base relief (for Div 296 purposes) or sell losses, for example, depend on what your effective tax rate will be, due to Div 296 tax vs alternatives, as well as estate intentions.

It’s complex, and if you have not already sought advice to understand your options, you absolutely should do so.

What Is Div 296 Tax?

Division 296 introduces an additional personal tax on superannuation earnings for individuals with very large super balances.

The tax applies when a person’s Total Superannuation Balance (TSB) exceeds certain thresholds.

Importantly, Division 296:

Does not apply to your entire super balance
Applies only to the portion of your balance above the thresholds
Applies only to future earnings

The government estimates that the measure will affect around the top 0.5% of Australians by super balance.

How Div 296 Tax Works?

Superannuation funds will continue to pay the usual 15% tax on investment earnings in accumulation and 0% in pension.

Division 296 introduces an additional personal tax where super balances exceed certain levels, regardless of whether the fund is in accumulation or pension.

Table showing Division 296 tax rates based on total super balance thresholds, including effective tax rates for balances up to $3 million, between $3 million and $10 million, and above $10 million.

Important Elements of Division 296

Only realised earnings are taxed – This includes income such as interest, dividends, rent and realised capital gains.
The thresholds will be indexed to CPI over time
The tax is assessed to you personally, however, similar to how Division 293 tax works, the amount can generally be paid from your super account if you choose, rather than from your personal cash flow.
Super balances are measured using an updated anti-avoidance rule.
Rather than simply using the balance at 30 June, the calculation is generally based on the higher of your total super balance at the start or end of the financial year. This change is designed to limit strategies where large withdrawals are made during the year to temporarily bring balances below the $3 million threshold (except in the first year, 2026–27).

What Happens in Practice including Div 296 Estate and CGT Impact

To bring this to life, let’s look at how Div 296 can play out in a real scenario.

Consider Christine:

She is in her early 60s and single
She has approximately $3.8 million in super
Her balance places her within Div 296
Her estate plan was established before these rules existed

How Division 296 works for Christine

Because Christine’s super balance exceeds $3 million:

Only the portion above $3 million is exposed to the additional tax
Any earnings on that portion (such as interest, dividends, rent, and realised capital gains) are taxed at an additional 15%

What changes when estate comes into play

The complexity increases significantly when we move into estate planning.

1. If Christine passes away on or before 30 June 2027:

No Division 296 tax applies at all
This is due to a one-off transitional concession in the first year
Even though her balance exceeds $3 million, no liability arises
This concession does not continue after 2026‑27.

2. If Christine passes away after 30 June 2027:

From 2027‑28 onwards, Div 296 can apply in the year of death, because the test uses the higher of opening or closing TSB
A final Div 296 tax liability may arise in the year of death
This liability becomes payable by her estate, not the beneficiaries

This is a key shift: Division 296 doesn’t stop at death; it carries into the estate.

3. Earnings continue after death

One of the most important (and often overlooked) changes under Division 296 is how earnings are treated after death. From 1 July of the relevant financial year through to when the super death benefit is fully paid out, any earnings are still included in the Div 296 calculation.

This means:

Investment income earned during this period continues to count
Realised capital gains during this period are also included
Delays in paying out death benefits can allow earnings to keep accruing
The final Div 296 liability can increase even though the estate hasn’t yet received the funds.

Since this is a new layer created by Div 296 which did not exist when the Will was drafted, it’s important to get expert advice on this.

4. Structure of the Will and Beneficiary Outcomes

Another important factor is how the Will itself is structured.

In Christine’s case, her Will was prepared before Div 296 and includes estate equalisation provisions and testamentary trusts. While these are commonly used to ensure fairness between beneficiaries, Div 296 introduces a new layer of complexity.

For example:

Her Will may assume that super and estate assets can be balanced or equalised between beneficiaries
However, her super may be paid directly to certain beneficiaries, outside the estate
At the same time, any Division 296 tax liability is paid by the estate

This creates a potential disconnect.

In practice, this could mean:

One beneficiary receives a larger share of super, while
The estate (and other beneficiaries) fund the tax liability

In addition, where testamentary trusts are used:

Delays in finalising the estate or allocating assets to trusts can extend the period before super is fully paid out
This can result in additional earnings being captured under Div 296, increasing the final tax outcome

Reversionary Pension Risk

Another important factor in Christine’s situation is that she is single.

Because of that:

There is no opportunity to transfer her super to a surviving spouse via a reversionary pension or spouse rollover
Her super will ultimately need to be paid out to adult children, her estate, or a combination of both.
This may require assets to be sold, potentially triggering capital gains and these gains are included in Div 296 earnings.

In a case, where there is a financial dependent partner as defined in the SIS Act:

Super can continue within the super system
Tax outcomes can be deferred or managed over a longer period

At the same time, any Div 296 liability is likely to crystallise in the year of death, often while estate administration is already underway. This adds an additional layer of complexity, as tax obligations need to be managed alongside asset distribution, liquidity requirements and ensuring fair outcomes for beneficiaries.

Key Takeaways from Christine Case Study

Christine’s situation highlights a few important things to be aware of:

If your super balance is above $3 million at the end of a financial year, you may be exposed to Division 296.
This means additional tax can apply to the earnings on the portion above $3 million.
If your super balance is above $3 million, Div 296 may still apply even in the year of death.
Any tax liability can become a cost that needs to be managed by your estate.
If your Will and super nominations aren’t aligned, it could lead to unfair outcomes between beneficiaries
Delays in paying out super can increase the final tax bill, even after you’ve passed away.

Key Div 296 Strategies to Consider

Division 296 tax doesn’t mean you need to take action straight away. Indeed for many people, super will remain the most tax-effective investment structure available.

That said, if your super balance is approaching or above the thresholds, it’s worth understanding the strategies available and how they may apply to your situation.

1. Review Your Total Super Balance

Start by understanding your total super balance across all funds, including SMSFs and retail or industry funds.

From there, consider:

Whether your balance is already above $3 million
How quickly it is growing
Whether it may move into a higher threshold over time

Not everyone needs to act immediately. In many cases, the focus is simply on monitoring your position and understanding future exposure.

2. Plan a Withdrawal (Where Appropriate)

One of the most commonly considered strategies is withdrawing a portion of your super to:

Bring your balance below $3 million (to avoid Division 296 tax), or
Keep your balance below $10 million (to avoid the higher tax tier)

This can be particularly effective in the lead-up to 30 June 2027, where timing plays an important role.

But does a withdrawal always improve your position?

Not necessarily. In many cases, withdrawing from super may not improve your overall financial position.

Even under Division 296:

Earnings on balances above $3 million are taxed up to a maximum of 30%, which is broadly in line with company tax rates
Super funds may still benefit from capital gains tax concessions, which can make them more tax-efficient than investing personally or through other structures

Because of this, moving money out of super doesn’t automatically improve your tax position.

For example:

If your personal tax rate is lower, there may be some benefit in withdrawing
But if you’re already earning income that places you in a higher tax bracket, or investing in structures with less favourable tax treatment, keeping funds in super may still be more effective

It’s also important to consider your broader financial position. Many individuals with larger super balances also hold significant wealth outside super, and decisions should be made based on your overall strategy, not just your super balance in isolation.

The key point is that a withdrawal can be a useful strategy, but only when it improves your overall after-tax position and aligns with your long-term financial goals. You’ll find a more detailed breakdown of how this plays out at different balance levels in the Strategies by Super Balance section below.

3. Check Whether Your Super Has Enough Liquidity

Division 296 tax is assessed to you personally, but in many cases, it can be paid directly from your super.

This makes it important to look beyond your balance and consider how your super is structured and how easily it can fund future tax liabilities.

In particular, ask:

Does your super generate enough regular cash flow (such as dividends, interest or rental income)?
Are there liquid assets (like cash or listed investments) that can be accessed without needing to sell long-term holdings?
Would paying tax require the sale of assets at an inconvenient time?

This becomes especially important for SMSFs that hold less liquid or irregular income-generating assets, such as property, private or unlisted investments, or assets that produce uneven or “lumpy” capital gains, as these structures may not consistently generate the cash flow needed to meet ongoing tax obligations.

In these cases, while your super balance may be high, the cash available to meet tax obligations may be limited. This can create pressure to sell assets, potentially at the wrong time or in unfavourable market conditions.

4. Review Your Contribution Strategy

Another area worth revisiting is your super contribution strategy and review whether concessional contributions still make sense.

If your super balance is already close to or above $3 million, putting more money into super may not always be the most effective option.

Instead, it might make sense to look at other ways to invest, such as:

Family trusts – budget proposals need to be considered
Investment companies
Investment bonds
Personally held investments.

This doesn’t mean you should stop contributing to super altogether. It simply means contributions should be intentional, with a clear understanding of how Division 296 may apply, rather than being the default choice.

At the end of the day, it’s about making sure each dollar is working as efficiently as possible, wherever it’s invested.

5. Manage the Timing of Asset Sales and Capital Gains

The timing of when you sell investments matters because Div 296 tax is linked to earnings, including capital gains which can directly influence how much tax you pay in any given year.

Because of this, it may be worth considering whether to:

Bring forward or delay the sale of certain assets, or
Spread gains across multiple years rather than realising them all at once

This can help avoid large spikes in taxable income and create a more consistent tax position over time.

There may also be transitional opportunities available, including potential CGT relief, depending on your situation and how your investments are structured.

6. Align Your Super with Your Estate Planning Strategy

Division 296 doesn’t just affect your tax during your lifetime; it also influences how your super interacts with your estate plan. As seen in Christine’s case, this can create outcomes that weren’t originally intended.

So, it’s important to consider how your estate planning arrangements may affect your beneficiaries, particularly in terms of future tax outcomes.

For example, many people use strategies such as:

Binding death benefit nominations (BDBNs) to direct who receives their super, and
Reversionary pensions, which automatically transfer income streams to a surviving spouse

While these have been effective and straightforward, Div 296 introduces a new consideration as we already discussed under Christine’s case study.

This means that strategies which were previously seen as low risk may now have different outcomes when viewed through a Div 296 tax lens.

Div 296 Strategies by Super Balance

The strategies below aren’t one-size-fits-all, they’re general guidance to consider depending on your situation. Before making any changes, it’s strongly recommended to seek expert advice to understand what’s right for you. And importantly, while Div 296 introduces new considerations, it doesn’t mean super is no longer effective, it can still play a valuable role in your overall strategy.

Div 296 Strategies by Super Balance

What Does the 2026 Federal Budget Mean for Div 296?

Canberra - Parliament House

With the proposed 2026 Federal Budget changes to CGT, negative gearing, and trust taxation, many Australian investors are questioning which investment structures will remain most effective moving forward and what actions they should be taking now.

However, despite the increasing focus on taxing wealth and investment earnings, super may still remain one of the most effective vehicles for long-term wealth creation even under Division 296 tax.

With that said, it’s important not to react too quickly to headlines or proposed policy changes alone. Decisions around withdrawing funds from super, restructuring investments, or changing ownership structures should come from careful strategic planning tailored to your personal circumstances.

The right approach will depend on a range of factors, including your tax position, investment structures, estate planning intentions and retirement goals.

With multiple tax changes now being discussed at the same time, proactive and tailored advice has become more important than ever.

At Yield, our team is actively reviewing the proposed Budget changes alongside the Div 296 reforms and carefully analysing each client’s circumstances to help ensure strategies remain aligned with their long-term financial goals.

If you are impacted by div 296, you should seek personal financial advice, considering the budget proposals.

What Should You Do Next?

If you’re reading this and still wondering what you should do next, the key message is simple, don’t panic or rush into withdrawing your super.

Division 296 is a long-term change, and reacting too quickly without a clear plan can lead to outcomes that may not actually improve your position.

With this said, if you are impacted it is ideal that you review this and act if appropriate prior to June 30^th 2026.

The focus should be on understanding how the rules apply to you and planning early. This gives you more flexibility and time to make informed decisions, rather than reacting once the tax is already in place.

A good starting point is to:

Understand your current and projected super balance
Review how your investments are structured
Consider how your broader financial position fits into the picture

Most importantly, seek expert advice tailored to your situation. What works for one person may not work for another, and the right approach depends on your income, tax position, investment structures, estate plan and long-term goals.

The earlier you plan, the more options you’ll have and the better positioned you’ll be to manage the changes effectively.

How Yield Advisors Can Help You

Navigating Division 296 isn’t just about understanding the rules, it’s about knowing how they apply to your specific situation and what actions (if any) will actually improve your outcome.

At Yield, we take a personalised and proactive approach. We’re already working closely with our clients to identify where Division 296 may apply, model the potential impact, and refine strategies in line with their long-term goals.

Our team of advisors are here to help you too and simplify the complexity and guide you move forward with confidence.

Understand your exposure to Div 296 tax based on your current and projected super balance

Model different scenarios, so you can see the impact of staying invested vs making changes
Review your super and investment structure to ensure it remains tax-efficient
Identify strategies that align with your goals, whether that’s maintaining your position, adjusting contributions, or considering withdrawals
Align your super with your broader financial plan, including estate planning and wealth held outside super

Most importantly, we help you focus on what actually matters, your overall after-tax outcome and long-term financial goals, not just reacting to a single tax change.

Division 296 doesn’t require a one-size-fits-all solution and with the right advice, you can take a measured, strategic approach that works for you.

If you’d like to understand how Division 296 tax applies to your situation, you can book a no obligation initial consultation with one of our Yield Advisors. This gives you the opportunity to discuss your situation, explore your options, and see if we’re the right fit for you.