The Better Targeted Superannuation Concessions measure (known as the Division 296 tax) is now law and takes effect from 1 July 2026. For those with large super balances, it’s important to understand what the new tax does, why it’s been introduced, and the practical steps you and your financial adviser should consider.
The Purpose of the Tax
Division 296 is designed to make superannuation tax concessions fairer and more sustainable. Rather than changing how superannuation is taxed for everyone, the law targets a small group of people who hold large superannuation balances, ensuring they pay more tax on the portion of investment earnings that relates to those balances.
Who it Applies to — Thresholds and Rates
This new measure, starting 1 July 2026 (first year is 2026-27), applies to an individual with total superannuation balances (TSBs) in excess of the following thresholds:
• Large balance threshold: $3.0 million
• Very large threshold: $10.0 million.
Both thresholds will be indexed in future years.
This will mean that the overall tax imposed on superannuation fund earnings will be as follows:
| Division 296 TSB | Div 296 tax rate on earnings relating to this band | Total effective tax on those earnings |
| Up to $3,000,000 | 0% | 15% (standard fund tax) |
| $3,000,001 to $10,000,000 | 15% | 30% (15% + 15%) |
| Above $10,000,000 | 25% | 40% (15% + 25%) |
Certain people will be exempt from this new tax, notwithstanding that their TSB may exceed the threshold. Excluded persons include child recipients of death benefit pensions and individuals who have made structured-settlement superannuation contributions in relation to a personal injury compensation payment.
Further, where a person dies, they will no longer have a TSB. However, other than the first year of operation (ie, 2026-27), there can still be a Division 296 tax assessment in respect of the financial year in which they die, where they had a TSB of more than $3 million at the start of the year. Given that superannuation is not an estate asset, this scenario should be considered as part of a review of an individual’s estate plan.
How the Tax Works
From an SMSF perspective, the fund will calculate its Division 296 earnings, which are based on its taxable income, with adjustments for assessable contributions; net exempt income attributable to pensions; any non-arm’s length income (which is already taxed at 45%); and income relating to investments in a pooled superannuation trust. There may also be adjustments to any capital gains arising from the disposal of fund assets if the fund has made the relevant small-fund CGT election.
The calculated Division 296 superannuation earnings are then attributed to fund members using an attribution percentage calculated by an actuary. The ATO will use this information to assess the member’s Division 296 tax liability.
Division 296 tax is levied on the individual, not a superannuation fund. However, the tax can be paid either by the individual or by electing for the amount to be deducted from their nominated superannuation interest.
Next Steps
If your total super balance is near or already above the thresholds, you must contact your financial adviser to arrange tailored modelling and to discuss whether the small-fund CGT election is suitable. Early planning will help you manage cash flow, reporting, and any actuarial requirements efficiently.
This will also be an opportunity to review the suitability and benefits of holding investment capital in a superannuation structure versus alternatives for amounts exceeding the large threshold.