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What is Division 296 tax?
Division 296 is a proposed additional 15% tax on superannuation earnings attributable to the part of a member's Total Super Balance (TSB) that exceeds $3 million. It is contained in the Treasury Laws Amendment (Better Targeted Superannuation) Bill 2024, which has not yet received Royal Assent. If passed, the government proposes the tax would apply from 1 July 2025. Unlike Division 293, which targets high earners, Division 296 targets high balances regardless of income.
The stated policy rationale is that high-balance super accounts benefit disproportionately from the concessional 15% fund earnings tax. The proposed additional tax would bring the effective rate on earnings above $3M closer to 30%, still well below the top marginal income tax rate of 47%.
- Proposed threshold: $3,000,000, fixed, not CPI-indexed
- Proposed additional tax rate: 15% on earnings attributable to the balance above $3M
- Proposed start date: 1 July 2025 (subject to change if bill is amended)
- Would apply to Total Super Balance across all funds, including SMSF and APRA-regulated funds
- Defined benefit interests would use a different notional earnings calculation
- Status: bill not yet passed
Who is affected?
Treasury modelling estimated approximately 80,000 Australians would initially be affected if the bill passes, roughly 0.5% of all superannuation fund members. Because the proposed threshold is not indexed to inflation, that number would grow over time as investment returns compound and nominal balances rise. A balance of $2.5M today, growing at 7% annually, crosses $3M in approximately four years without any additional contributions.
Under the bill as drafted, Division 296 would apply to members whose Total Super Balance across all funds exceeds $3 million at the end of any financial year from 2025-26 onwards. That includes members of SMSFs, large APRA-regulated funds, retail funds, or any combination. The earnings calculation would be based on balance movement rather than cash income, meaning unrealised capital gains are included. The pension-phase rules would not exempt high balances; pension-phase assets would count toward the threshold test.
How the tax is calculated
The proposed Division 296 calculation has three steps, each straightforward on its own. The complication lies in step one, where the earnings measure is broader than most members expect.
Step 1: Calculate super earnings
This is the adjusted TSB method. It measures the change in your total super wealth during the year, adjusted for money flowing in and out. The key point is that this figure is based on total balance movements, not on cash income or dividends received. Unrealised capital gains are therefore included: if your SMSF property rose in value by $200,000 this year and you sold nothing, that $200,000 still appears in the earnings base. If super earnings work out to zero or less because investment losses exceeded contributions, no Division 296 tax applies for that year.
Step 2: Calculate the proportion above $3 million
Not all of your earnings are taxed at the additional rate, only the portion attributable to the balance above $3M. If your year-end TSB is $3.4M, the proportion is ($3.4M - $3M) / $3.4M = 11.8%. The remaining 88.2% of earnings continue to be taxed at the standard fund rate.
Step 3: Apply 15%
This is the additional tax payable on top of the 15% the fund already pays on accumulation-phase earnings. For a balance well above $3M, the effective rate on the excess portion approaches 30%.
The unrealised gains problem
The most discussed aspect of Division 296 is that the earnings measure captures unrealised capital gains. This is unusual in Australian taxation. Capital gains tax ordinarily applies only when an asset is disposed of. Division 296 uses the change in Total Super Balance as its proxy for earnings, which reflects movements in asset values whether or not a sale occurred.
The practical implications are sharpest for SMSF trustees. An SMSF holding a commercial property valued at $2M that rises to $2.2M over the year has $200,000 of unrealised gain in its earnings base, even if no rent changed and no property was sold. Annual valuations required by SMSF auditors feed directly into the TSB reported to the ATO, so any increase in asset value flows through to Division 296 earnings. The same logic applies to unlisted shares and private company interests.
For APRA-regulated funds, daily unit pricing means earnings already track closely to cash returns, so the unrealised gain problem is less acute. SMSF trustees with concentrated illiquid holdings are most exposed to a situation where a real cash tax bill arises from a paper gain.
Worked example: $3.5M SMSF balance
Scenario: Single member SMSF, accumulation phase
| Item | Amount |
|---|---|
| TSB at 1 July 2025 (start of year) | $3,200,000 |
| Concessional contributions during year | $30,000 |
| Benefits paid / withdrawals during year | $0 |
| TSB at 30 June 2026 (end of year) | $3,450,000 |
Step 1 - Super earnings:
Step 2 - Proportion above $3M:
Step 3 - Division 296 tax:
| Result item | Amount |
|---|---|
| Super earnings | $220,000 |
| Proportion above threshold | 13.04% |
| Taxable earnings | $28,688 |
| Division 296 tax payable | $4,303 |
Of the $220,000 in earnings, only 13.04% is subject to the additional 15%. The rest remains taxed at the standard 15% fund rate.
Payment options
Under the proposed bill, the ATO would issue a Division 296 tax assessment after the member lodges their income tax return. Payment would be due 21 days after the assessment date. There are two proposed ways to pay.
Pay personally
You would pay the full amount from personal (non-super) funds. The super fund would be unaffected and retains its full balance. This approach is worth considering when the fund holds illiquid assets or when preserving the tax-advantaged super environment is the priority.
Release authority from super
Under the bill, a member could elect to release up to 85% of the assessed tax from their super fund via a release authority, which is a formal direction to the fund to pay the ATO directly. The remaining 15% would need to come from personal funds. By comparison, Division 293 allows up to 100% release from super, so Division 296 would always require at least a small personal cash contribution if passed.
The 85% cap is designed to prevent a full-release scenario where tax is paid on earnings that were entirely funded by the member's own contributions, leaving the fund with no net benefit from those contributions.
Division 296 vs Division 293: key differences
| Feature | Division 293 | Division 296 |
|---|---|---|
| Trigger | Income for surcharge purposes > $250,000 | Total Super Balance > $3,000,000 |
| Tax base | Concessional contributions (lesser of contributions or excess income over threshold) | Super earnings including unrealised gains, multiplied by proportion above $3M |
| Additional rate | 15% | 15% |
| Threshold indexed? | No, $250k unchanged since 2012 | No, fixed at $3M |
| Applies from | 2012-13 | 2025-26 (proposed, not yet law) |
| Release authority limit | Up to 100% from super | Up to 85% from super |
| Applies to defined benefits? | Yes (different formula) | Yes (notional earnings formula) |
| Can both apply in same year? | Yes, they use different tax bases and are calculated independently | |
Planning strategies
Members above or approaching $3M in total super have a number of structural options worth reviewing with a licensed adviser. The right approach depends on the full picture: income, age, fund structure, defined benefit interests, estate planning objectives, and more. The strategies below are general in nature and involve trade-offs that require individual modelling.
Spouse contribution splitting
Where one partner holds a large super balance and the other is below $3M, directing contributions to the lower-balance partner and splitting existing concessional contributions can reduce or eliminate the high-balance partner's Division 296 exposure. The most effective outcome is where both partners finish the year below $3M, so neither is liable. The spouse contributions guide covers the mechanics and contribution limits.
Non-concessional contribution timing
Non-concessional contributions increase TSB at the start of the next year without directly causing earnings in the year they are made. They do push the balance higher, which means more future earnings will fall above the $3M threshold. The value of large non-concessional contributions is worth reconsidering when the balance is near $3M.
Pension-phase assets and the Transfer Balance Cap
The Transfer Balance Cap controls how much can be held in tax-free pension phase. Pension-phase assets still count toward the $3M threshold test for Division 296 purposes. Maximising pension-phase assets within the cap reduces accumulation-phase earnings tax but does not avoid Division 296 when total super exceeds $3M.
SMSF asset mix and liquidity planning
Trustees with illiquid assets face the sharpest cash-flow risk from Division 296. Holding sufficient liquid assets to cover at least one year's estimated Division 296 liability reduces the risk of forced asset sales to meet the tax bill. An annual modelling exercise before 30 June, using updated asset valuations, helps avoid surprises at assessment time.
Partial withdrawal and re-contribution
Withdrawing super and re-contributing to a lower-balance spouse's account or investing outside super are options that many advisers consider in this context. Re-contributions may trigger the non-concessional caps, and withdrawals from accumulation phase carry tax implications depending on the taxable and tax-free components of the member's interest. Detailed modelling is needed before proceeding.
Model your proposed Division 296 liability
Use the free Division 296 calculator to estimate what the proposed tax would cost if the bill passes, and see a 5-year projection based on your current balance.
Open Division 296 CalculatorSpecial considerations for SMSF trustees
Division 296 creates some unique challenges for SMSF trustees that do not apply to the same degree for members of large APRA-regulated funds.
Annual valuations would carry more weight. SMSF trustees must value all assets at market value each year for the annual return and audit. If Division 296 passes, those valuations would directly determine the earnings base. A conservative but defensible valuation methodology reduces both audit risk and potential Division 296 earnings, and valuers should be briefed on the stakes if the bill becomes law.
Audit and lodgement timing. The SMSF annual return and audit must be completed before the member lodges their individual tax return. If Division 296 passes, late lodgement would delay the assessment but may also attract ATO late-lodgement penalties. Getting the SMSF return lodged on time becomes more financially consequential for high-balance trustees once the bill is enacted.
Related-party transactions. Valuing related-party assets such as real property purchased from a related party requires arm's length evidence. If Division 296 passes, the ATO would have an additional reason to scrutinise SMSF asset valuations, since understating asset values would reduce the apparent TSB earnings base.
Defined benefit interests within SMSFs. Pure defined benefit SMSFs are rare but do exist. Trustees of such funds should confirm with their adviser which earnings calculation applies, as the notional earnings formula differs from the adjusted TSB method used for standard accumulation accounts.
Frequently asked questions
Does Division 296 apply to the entire balance or just the amount over $3M?
Neither, exactly. The tax applies to the portion of earnings attributable to the balance above $3M. The proportion formula, (TSB_end - $3M) / TSB_end, determines what fraction of earnings is taxable. Only that fraction of earnings faces the additional 15%; the rest continues at the standard fund tax rate.
What if my balance drops below $3M mid-year?
The test is the balance at the end of the financial year, 30 June. If the year-end TSB is below $3M, no Division 296 applies for that year regardless of what happened during the year. If it goes above $3M by 30 June, the full-year earnings formula applies.
Can Division 296 tax be offset by fund losses in a future year?
Under the bill as drafted, no. If earnings are negative in a subsequent year, no Division 296 tax would apply for that year. However, the bill does not provide a carry-back or refund mechanism to recoup Division 296 paid in prior years when earnings are later lost. This remains one of the more contested aspects of the proposed legislation and could change if the bill is amended.
Does the proposed Division 296 apply to pension-phase assets?
Yes, under the bill as drafted. Division 296 would apply to total super balances including pension-phase interests. Pension-phase assets would count toward the $3M threshold test. The pension-phase tax exemption within the Transfer Balance Cap would continue to apply at the fund level. Division 296 is proposed as an additional personal assessment on the member, not a change to the fund's internal tax rate.
What happens if I have super in multiple funds?
Under the proposal, the ATO would calculate Total Super Balance by aggregating reporting data from all super providers. The Division 296 assessment would be issued to the individual, not to each fund separately. The member would then decide which fund, if any, to direct a release authority toward.
Is there a minimum age for Division 296 to apply?
Not under the bill as proposed. Division 296 would apply based on balance and earnings, not age. It could affect accumulation-phase members of any age, as well as retirees drawing a pension from a total balance above $3M.