After more than three years of announcements, consultations, redesigns and political debate, the Division 296 tax on large superannuation balances has passed both Houses of Parliament. The Building a Stronger and Fairer Super System Bill 2026 passed the Senate on 10 March 2026 and is now awaiting royal assent. It takes effect from 1 July 2026. 

If your total superannuation balance is above $3 million, or is likely to approach that level, this article explains exactly what the law means, what is different from the original proposal, and what you should do before 30 June.

 July 2026.

Division 296 was first announced in the 2023 Federal Budget. The original proposal drew widespread criticism for one particularly controversial feature: it would have taxed unrealised capital gains inside superannuation — paper profits on assets like property or unlisted shares that had not actually been sold. Critics correctly pointed out this would create cash-flow problems for funds holding illiquid assets, potentially forcing asset sales simply to fund a tax bill.

After years of debate, the Government introduced revised legislation to Parliament in February 2026. The final version that passed on 10 March is materially different from the original and considerably more workable. Here is what the law actually says.

The key features of the final law

Division 296 imposes an additional personal tax on individuals whose total superannuation balance (TSB) exceeds $3 million. The tax is levied at the individual level, not the fund level, and applies to a proportion of the individual's superannuation earnings based on how much of their balance sits above the relevant threshold.

The final law includes two tiers:

• Tier 1: Balances between $3 million and $10 million: an additional 15% tax applies to earnings attributable to the portion above $3 million (bringing the effective rate on those earnings to 30%, combining the standard 15% fund tax with the 15% Division 296 top-up).
• Tier 2: Balances above $10 million: an additional 25% tax applies to earnings attributable to the portion above $10 million (bringing the effective rate on those earnings to 40%).

Both thresholds will be indexed annually. The $3 million threshold will increase in $150,000 increments; the $10 million threshold in $500,000 increments. This is a significant improvement on the original proposal, which would have left the $3 million threshold unindexed, meaning inflation alone would have pulled more and more Australians into the regime over time.

The tax is based on realised earnings only — dividends, interest, rent, and capital gains on assets that have actually been sold. Unrealised gains are excluded from the calculation. This removes the central objection to the original proposal and makes the regime far more practical for funds holding property or private company interests.

Who is affected?

The Government estimates that less than 0.5% of Australians will be affected at the $3 million threshold, and fewer than 0.1% at the $10 million mark. However, the cumulative impact of contributions, investment returns and the indexation of the threshold means that the number of people affected will grow over time, particularly younger high earners with decades of compulsory contributions ahead of them.

The tax applies across all superannuation account types — industry funds, retail funds, SMSFs, and defined benefit schemes. Your TSB is measured across all of your accounts combined, not fund by fund. If you have both an SMSF and an industry fund, both balances count toward the $3 million threshold.

How the tax is calculated: A practical example

The ATO will calculate each individual's Division 296 liability after the end of the financial year. The calculation is based on the proportion of the TSB that sits above the threshold, applied to the fund's earnings for the year.

Consider a member with a TSB of $4.5 million at 30 June 2027 (the first assessment year):

• Their fund earned $300,000 in realised income.
• The portion of their balance above $3 million is $1.5 million — one-third of the total $4.5 million TSB.
• Division 296 tax therefore applies to one-third of the earnings: $100,000.
• At 15%, the Division 296 liability is $15,000. This is in addition to the 15% tax already paid by the fund on those earnings.

Individuals can elect to pay their Division 296 liability personally, or have it paid from their superannuation account. Most will choose to pay from super to preserve personal cash flow, but this reduces the balance available to compound for retirement.

The SMSF CGT cost base election: Act before you lodge your 2026-27 return

One of the most practically important features of the final law is a once-only transitional relief measure for SMSFs. SMSF trustees may make an irrevocable election to reset the cost base of all directly-held CGT assets in the fund to their market value at 30 June 2026, for the purposes of Division 296 calculations only.

What this means in practice

if your SMSF holds assets — shares, property, or other investments — that have increased significantly in value since they were purchased, a large portion of any future capital gain on those assets would otherwise be captured in the Division 296 earnings calculation. The cost base election ensures that only growth occurring after 1 July 2026 (the start date of the new regime) is counted toward the Division 296 tax, not historical gains accumulated before the law existed.

This election must be made by the due date for lodging the fund's 2026-27 tax return. It cannot be reversed. It does not affect the fund's regular CGT calculations, only the Division 296 earnings calculation. Given the irrevocable nature of the election and the complexity of the interaction with existing assets, we strongly recommend SMSF trustees with balances approaching or above $3 million discuss this with us as a priority.

Note: this cost base reset option is not available to retail or industry fund members. Those funds will instead benefit from a separate transitional provision that reduces the proportion of net capital gains subject to Division 296 for the first four years (2026-27 to 2029-30 inclusive).

What about the Low Income Superannuation Tax Offset?

As part of the same legislation, the Government has increased the Low Income Superannuation Tax Offset (LISTO). From 1 July 2027, the income eligibility threshold will rise from $37,000 to $45,000, and the maximum offset payment will increase from $500 to $810.

Treasury estimates the average increase in the LISTO for affected workers will be $410 per year. While this has received less attention than Division 296, it is meaningful for lower-income earners — particularly part-time workers and those returning to work after parental leave.

What should you do now?

If your total super balance is at or above $3 million across all funds, contact us to review your position before 30 June 2026.

Key actions include:

• Obtaining current market valuations for all SMSF assets
• Reviewing whether the CGT cost base election is appropriate for your fund
• Modelling the likely Division 296 liability for 2026-2
• Reviewing whether the split of assets between superannuation and other structures remains optimal given the new tax.

Do not wait until after 30 June. Some decisions, including the CGT election, have irrevocable and time-sensitive consequences.

Please contact us if you have any questions - email us or phone our team on 02 9899 3044.