If you have a large superannuation balance, you've probably heard about "Division 296 tax", sometimes called the "$3 million super tax." The legislation is now law, and it starts applying from the 2026–27 income year. Here's how it operates, who it affects, and what to think about before 30 June 2027.

What is Division 296 tax?

Division 296 was passed earlier this year. Its stated purpose is to "reduce the concessional tax treatment of superannuation earnings" for people whose Total Superannuation Balance (TSB) is above a set threshold.

In plain terms: once your TSB crosses the threshold, a portion of your superannuation earnings for the year becomes subject to an extra layer of tax, on top of the 15% your fund already pays.

The two thresholds for superannuation balances

The law sets two thresholds, both measured against your TSB just before the start of the income year, or at the end of it:

Both thresholds are indexed annually from 2027–28 onward (in $150,000 increments for the $3m threshold, and $500,000 increments for the $10m threshold), based on CPI movements, though indexation isn't guaranteed to increase the threshold every year.

How the Division 293 tax is calculated

This isn’t a flat tax on your whole balance. The formula only taxes the proportion of your superannuation earnings that relates to the amount of your balance above the threshold.

• Your taxable superannuation earnings apply once your TSB exceeds $3 million, calculated using a formula that looks at the growth in your TSB over the year (adjusted for contributions and withdrawals), multiplied by the proportion of your balance above $3 million.
• If your TSB also exceeds $10 million, a second, additional earnings component applies to the portion above that higher threshold.

A few technical points worth knowing:

• Limited Recourse Borrowing Arrangement (LRBA) amounts are disregarded when working out your TSB for Division 296 purposes.
• If you pass away during the year, your TSB is taken to be nil from that point, so no Division 296 tax applies for the period after death.
• There are specific exceptions for child recipients of superannuation income streams and for structured settlement contributions.
• For the 2026–27 year specifically, transitional rules mean the calculation is based on your TSB at the end of that year, rather than comparing start-of-year and end-of-year balances, so what happens between now and 30 June 2027 matters.

Why this matters more than it might first appear

Because the tax is based on Total Superannuation Balance, that is, by combining accumulation and pension phase, across all your super interests, it can catch people who don’t think of themselves as having one enormous fund. If you’re an SMSF trustee, a business owner with property or other assets inside your fund, or someone who has built up super over a long career, it’s worth checking where your TSB currently sits and where its trending.

It’s also worth noting this isn’t only a “wealthy retiree” issue. Growth in fund asset values (including unrealised gains on property, business real property, or growth assets held by an SMSF) can push your TSB over the threshold even without you drawing extra income, which raises real questions about liquidity, particularly for SMSFs holding illiquid assets like direct property.

What clients should be thinking about now

Know your number

Ask us for a current Total Superannuation Balance report so you know exactly where you sit relative to $3 million and $10 million.

Think about timing

Contributions, pension commencements, and asset revaluations before 30 June each year can all affect your TSB at the measurement date.

Check fund liquidity

If your SMSF holds property orother illiquid assets and your balance is near or above the threshold, consider how any Division 296 tax liability would be paid.

Review structure, not just balance

Depending on your circumstances, options such as spouse contribution splitting or restructuring how assets are held may be worth discussing; every situation is different.

Don’t wait for the assessment

The earlier we look at this together, the more options are available before the 30 June 2027 measurement date for the first year of the tax.

This is general information, not advice

The above is a general summary of Division 296 tax and does not consider your personal circumstances. Whether — and how much — Division 296 tax applies to you depends on your specific superannuation balances, fund structure, and timing of transactions. Speak with your Causbrooks contact before making any decisions.