Last updated on 23/10/2025
If you’re someone steadily growing a significant Super balance, or you’ve already accumulated a large balance, this is something you’ll want to understand. Even if you’re not quite there yet, this could be relevant sooner than you think depending on how you plan to grow your Super.
With the recent government updates, Division 296 will now apply to two thresholds:
- An additional 15% tax on realised earnings for super balances above $3 million, and
- An further additional 25% tax on realised earnings for super balances above $10 million.
While it has not yet been legislated, it is now proposed to take effect from the 2026–27 financial year. This means the tax will apply to individual member balances exceeding these thresholds as of 30 June 2027.
These changes aim to make the system fairer while maintaining the concessional tax benefits for most Australians.
And when we say, “Super Balances,” it means the total across all your Super accounts, including any industry, retail, public sector funds and Self-Managed Super Funds (SMSFs) combined.
Sounds straightforward, right? Not quite. The complexity lies in how the tax is calculated, how it could evolve over time and how it affects investment planning, estate strategies, and retirement income flows.
In this blog, we’ll break down;
- Difference between general Super tax and Division 296 Tax
- What is Division 296 tax and how it works?
- Who will (and won’t) be impacted by Division 296 Tax?
- Practical strategies to manage and plan around its impact
A Quick Refresher: How Super Is Usually Taxed?
Before we get into the details of Division 296, let’s take a step back and look at the current Superannuation system because understanding how Super earnings are normally taxed helps explain why this new proposal feels like a big shift.
In the accumulation phase (pre-retirement):
- Super investment earnings, like interest, dividends, and capital gains are generally taxed at a 15% rate.
- For assets held longer than 12 months, capital gains receive a one-third discount, bringing the effective tax rate on those profits down to 10%.
- Imputation credits from share dividends can be used to offset any tax owed and are refundable if the fund’s total tax liability is low or zero.
In the retirement phase (pension accounts):
- Earnings are completely tax-free on investments supporting a retirement income stream.
- However, there’s the Transfer Balance Cap (currently 2 million) on how much you can move into these tax-free retirement accounts.
- Anything over this cap must stay either in your accumulation account, where earnings are taxed at 15%, or can be withdrawn from Super entirely.
So, what is Div 296 Tax, exactly?
At a glance, Division 296 proposes an additional tax on a portion of your super earnings if your Total Superannuation Balance (TSB) exceeds two thresholds:
- Extra 15% on realised earnings for balances between $3 million and $10 million, and
- Extra 25% on realised earnings for balances above $10 million.
Initially, the proposal only included a single $3 million threshold with an extra 15% tax even on unrealised capital gains, meaning individuals could have been taxed on investment growth they hadn’t actually realised.
However, recent government updates (October 2025) have adjusted these plans and to learn more about the latest Division 296 tax changes, take a look at our recent blog for a clear breakdown of the updates – “Major Changes to Division 296 with No Tax on Unrealised Capital Gains“
Who Will and Won’t Be Impacted by Div 296 Tax (After October Updates)?
How is Div 296 Calculated (Post October 2025 updates)?
Here’s a step-by-step breakdown of how the calculation works:
1. Calculate Realised Earnings
This includes earning like interest, dividends, rent and realised capital gains.
2. Identify the Proportion Above $3 Million and $10 Million
Next, work out how much of those earnings relate to the part of the balance that exceeds the $3M and $10M thresholds.
- Proportion above $3M = (TSB at the end − $3 million) ÷ TSB at the end
- Proportion above $10M = (TSB at the end − $10 million) ÷ TSB at the end
3. Calculate the Taxable earning over thresholds
- Taxable earning over $3M = Earnings x Proportion of TSB above the $3m threshold
- Taxable earning over $10M = Earnings x Proportion of TSB above the $10m threshold
4. Calculate the Div 296 Tax
Finally, a 15% tax is applied to the portion of realised earnings attributable to the excess balance over $3M and 25% over $10M. This is the Division 296 tax liability.
- Division 296 Tax = (Taxable Earnings over $3m x 15%) + (Taxable Earnings over $10m x 25%)
Let’s Walk Through Some Division 296 Tax Examples
(Post October 2025 updates)
Please note that there are still ongoing discussions and consultations around the Division 296 tax, and the examples below reflect the most recent updates
Scenario 1: Anne’s total super balance at 30 June 2026 is $5 million, with $800,000 in earnings for the year.
- $3 million threshold applies
- Additional Division 296 tax rate: 15%
✅ Step 1: Find the proportion of Anne’s balance above the $3 million threshold
- Proportion = [5,000,000 – 3,000,000] / 5,000,000 = 40%
✅ Step 2: Calculate Div 296 taxable earnings
- Taxable portion = 800,000×40% = 320,000
✅ Step 3: Calculate Div 296 Tax
- Div 296 Tax =320,000×15% = 48,000
Scenario 2: Peter’s TSB at 30 June 2026 is $12M with 1.5M in earnings
- $3M and $10M thresholds apply
- Additional Division 296 tax rate: 15% & 25%
✅ Step 1: Find the proportion of Peter’s balance between the $3M and $10M as well as above the $10M threshold.
- Proportion of TSB above the $3 million threshold = [10,000,000 – 3,000,000] / 12,000,000 = 58.33%
- Proportion of TSB above the $10 million threshold = [12,000,000 – 10,000,000] / 12,000,000 = 16.67%
✅ Step 2: Calculate Div 296 taxable earnings
- 1,500,000 × 58.33% = 874,950
- 1,500,000 × 16.67% = 250,050
✅ Step 3: Calculate Div 296 Tax
- Div 296 tax over $3m = 874,950 × 15% = 131,242.50
- Div 296 tax over $10m = 250,050 × 25% = 62,512.50
Peter’s Total Div 296 Tax = $193,755
The scenarios above illustrate just a few ways Division 296 tax could apply, but they are not exhaustive. In reality, situations can range from very simple to highly complex. Furthermore, as the legislation is not yet finalised, additional changes may still occur.
The key is that the impact of Division 296 will depend on your unique situation, including your super structure, investment performance, and long-term financial goals.
5 Strategies for Div 296 Tax
While Division 296 introduces a new layer of complexity and potential tax liability, there are strategies you can consider to effectively manage its impact.
1. Review Your Contribution Strategies
If your super balance is approaching or already exceeds $3 million, it is important to review your current contribution strategy in light of the Division 296 tax changes.
Depending on your circumstances, strategies such as contribution splitting with a lower-balance spouse, withdrawal and recontribution, or redirecting additional investments outside the Superannuation environment may offer more tax-effective outcomes.
However, the best strategy will always depend on your individual income, tax position, and long-term goals. Taking the time to explore different scenarios and seeking expert advice can make all the difference in finding the right path for you. Remember, your super is personal and so should be your strategy.
2. Review Your SMSF Strategy
For those with SMSFs, it’s important to assess how Division 296 affects your SMSF structure and investment approach. This may involve considering diversification, liquidity management, and the timing of contributions and withdrawals to optimise your tax position while considering your overall picture.
3. Explore Alternative Structures for Future Investments
You can explore investment outside of super such as through trusts, personal investments, or other vehicles like life insurance bonds. This can help spread your wealth across different tax environments and potentially reduce exposure to Division 296 tax and be better for your tax position overall. However, it’s important to remember this should not be viewed as a standalone strategy, your overall financial situation and long-term goals need to be carefully considered before making any decisions.
4. Think About the Estate Planning Angle
It’s important to factor Division 296 tax considerations into your broader estate planning strategy. By carefully structuring your superannuation and investment holdings with your beneficiaries in mind, you can help minimise potential tax burdens for your loved ones and ensure your wealth is transferred in the most efficient and effective way possible.
5. Seek Reliable Expert Advice
Division 296 tax rules are complex and affect each individual differently based on their unique financial circumstances. On top of this, there are other tax implications to consider, making the overall picture even more complicated. That’s why it’s wise to work with a trusted advisor who can provide personalised guidance tailored to your specific situation and long-term goals. An expert can help you fully understand how Div 296 tax applies to your super balance, identify effective strategies to manage your tax liability, and help ensure your overall financial plan stays on track.
How Yield Advisors Can Help You?
With Division 296 tax still pending legislation, it’s important to stay informed and prepared for any changes before it takes effect. The key is not to panic or make rushed decisions. Instead, take a measured, strategic approach to your situation, with expert guidance by your side.
At Yield, our highly experienced team has years of expertise working with high-net-worth individual professionals, business owners and retirees. We’ve developed tailored strategies across many complex financial areas, including super, tax planning and investment strategies. We always take a personalised approach to every client, ensuring our advice reflects the latest changes in the financial landscape and aligns with your unique goals.
If you’d like to explore your options and discuss your situation with a financial advisor, reach out to book your initial consultation and connect with one of our experts.
