Division 296 Tax on Super Balances Over $3 Million: An Accountant's 2026 Implementation Guide

From 1 July 2026, a new layer of superannuation taxation takes effect in Australia. Division 296 of the Income Tax Assessment Act 1997 imposes an additional 15% tax on the earnings attributable to superannuation balances above $3 million. For individuals with large superannuation accounts — particularly self-managed super fund (SMSF) trustees — the implications are significant, and the planning window is now. An experienced accountant can help you understand your exposure, evaluate the SMSF cost base reset election, and structure your affairs to minimise the impact of this new tax.

Understanding Division 296: The Basics

Division 296 is designed to reduce the tax concessions available to individuals with very high superannuation balances. Under the existing superannuation tax framework, earnings within a superannuation fund are taxed at a concessional rate of 15% in the accumulation phase. Division 296 adds a further 15% tax on the portion of earnings attributable to balances exceeding the Large Super Balance Threshold (LSBT).

The LSBT is set at $3 million for the 2026-27 financial year, with both the $3 million and $10 million thresholds subject to indexation in line with the Consumer Price Index (CPI) in subsequent years. This means the thresholds will increase over time, but the tax will apply from the first year to all individuals whose total superannuation balance (TSB) exceeds $3 million at 30 June 2026.

A second, higher tier applies to balances exceeding the Very Large Super Balance Threshold (VLSBT) of $10 million. For the portion of earnings attributable to balances above $10 million, an additional 10% tax applies — bringing the total additional tax to 25% for that portion. Combined with the existing 15% accumulation tax, the effective tax rate on earnings above $10 million reaches 40%.

How the Tax Is Calculated

The Division 296 tax is calculated by the ATO based on information reported by superannuation funds. The process involves several steps that accountants and SMSF trustees need to understand.

Step 1: Determine the Relevant Proportion

The ATO calculates the proportion of your total superannuation balance that exceeds the $3 million threshold. For example, if your TSB is $4 million, the excess is $1 million — representing 25% of your total balance. This proportion is then applied to your fund's total earnings for the year to determine the earnings attributable to the excess balance.

Step 2: Calculate Attributable Earnings

Earnings for Division 296 purposes are calculated using a formula based on the change in your TSB over the financial year, adjusted for contributions and withdrawals. Importantly, the legislation does not tax unrealised capital gains separately — the earnings calculation is based on the overall change in TSB, which means unrealised gains are effectively included in the earnings base.

Step 3: Apply the 15% Tax Rate

The ATO applies a 15% tax rate to the attributable earnings calculated in Step 2. The resulting tax liability is assessed to the individual — not the fund — and can be paid personally or by requesting a release from the superannuation fund.

The SMSF Cost Base Reset Election

One of the most important planning opportunities available to SMSF members is the cost base reset election. SMSFs are eligible to elect to reset the cost bases of all their assets to market value as at 30 June 2026. This election is available specifically for Division 296 purposes and creates a separate cost base for assets held within the fund.

The practical effect of the election is to reduce the future capital gains that will be included in the Division 296 earnings calculation. By resetting cost bases to current market value, any unrealised gains that have accrued to date are effectively excluded from future Division 296 earnings — they will only be subject to the standard CGT rules when assets are eventually sold.

The election is an all-or-nothing decision: it applies to all assets held by the SMSF, not just selected assets. This means trustees must carefully consider the implications of revaluing all assets, including any that may have declined in value or where a higher cost base could affect other tax calculations.

The deadline for making the cost base reset election is critical. Trustees should engage their accountant well before 30 June 2026 to assess whether the election is appropriate for their fund and to ensure the necessary documentation is in place.

Key Considerations for Affected Individuals

Division 296 affects a relatively small number of Australians — those with superannuation balances above $3 million — but the planning implications are significant. There are several key considerations that an accountant can help you work through.

• Liquidity planning — If your SMSF holds illiquid assets such as commercial property or unlisted investments, paying the Division 296 tax personally may be preferable to forcing a sale of fund assets. Your accountant can model the cash flow implications of each approach.
• Contribution strategy review — Making additional contributions to a fund that is already above $3 million will increase your Division 296 exposure. Your accountant can help you assess whether further contributions are still tax-effective given the new tax.
• Pension phase considerations — Division 296 applies to balances in both accumulation and pension phase. Individuals with large pension accounts should review their drawdown strategy in light of the new tax.
• Estate planning implications — The cost base reset election and Division 296 tax have implications for estate planning, particularly where superannuation forms a significant part of an estate. Your accountant and estate planning adviser should review these together.
• Spouse splitting and contribution strategies — Where one spouse has a balance above $3 million and the other does not, contribution splitting and other strategies may help to rebalance superannuation between spouses over time.

Common Mistakes and Misconceptions

Division 296 is a new and complex measure, and there are several common misconceptions that accountants are already encountering in practice.

• Assuming the tax only applies to earnings above $3 million — The tax applies to the proportion of total fund earnings attributable to the balance above $3 million, not just to earnings generated by the excess amount. This distinction can result in a higher tax liability than many individuals expect.
• Overlooking the cost base reset deadline — The cost base reset election must be made before 30 June 2026. Missing this deadline means losing the opportunity to exclude accrued unrealised gains from future Division 296 earnings calculations.
• Failing to account for the tax in cash flow planning — Division 296 assessments will be issued after 30 June 2027 for the first year. Individuals need to plan for this liability in advance, particularly if they intend to pay it personally rather than from the fund.
• Assuming non-SMSF members are unaffected — Division 296 applies to all superannuation fund members, not just SMSF trustees. Members of industry and retail funds with balances above $3 million are equally affected, though the cost base reset election is only available to SMSFs.
• Conflating Division 296 with the existing $1.9 million transfer balance cap — Division 296 is a separate measure from the transfer balance cap. It applies to total superannuation balances in accumulation phase, not to the amount transferred to pension phase.

Australian Regulatory Context

Division 296 was enacted through the Better Targeted Superannuation Concessions Act 2024, which received Royal Assent in late 2024 after an extended legislative process. The ATO has published detailed guidance on the measure, including information on the earnings calculation methodology, the cost base reset election, and the assessment and payment process.

The ATO will identify affected individuals by monitoring total superannuation balances reported by all funds. Funds are required to report member balances and earnings information to the ATO through the existing superannuation reporting framework. The ATO will then calculate each individual's Division 296 liability and issue an assessment.

The Tax Practitioners Board (TPB) regulates registered tax agents and tax (financial) advisers who provide advice on Division 296 and related superannuation matters. Only registered practitioners can provide tax advice for a fee. The TPB's Code of Professional Conduct requires registered agents to maintain competence in areas where they provide advice, making it important to engage an accountant with specific expertise in superannuation taxation.

The Australian Taxation Office has indicated that it will take a practical approach to the first year of Division 296 assessments, recognising that many individuals and their advisers are still working through the implications. However, the cost base reset election deadline of 30 June 2026 is firm, and there is no indication that extensions will be granted.

Division 296 Planning Checklist

Use this checklist to assess your Division 296 exposure and planning priorities before 30 June 2026.

• Has your accountant calculated your projected total superannuation balance as at 30 June 2026?
• If your TSB will exceed $3 million, has your accountant modelled your estimated Division 296 liability for 2026-27?
• If you are an SMSF member, has your accountant assessed whether the cost base reset election is appropriate for your fund?
• Have you reviewed your contribution strategy in light of Division 296?
• Have you considered whether to pay the Division 296 tax personally or from the fund, and what the cash flow implications are?
• Have you reviewed your estate planning arrangements in light of Division 296?
• If you have a spouse with a lower superannuation balance, have you considered contribution splitting strategies?
• Has your accountant confirmed the cost base reset election deadline and documentation requirements?

How MyMoney® Can Help

Division 296 represents one of the most significant changes to superannuation taxation in a generation. The planning window before 1 July 2026 is narrow, and the cost base reset election deadline is firm. Engaging an accountant with deep expertise in superannuation taxation now — rather than after the tax takes effect — is the most effective way to manage your exposure.

MyMoney® connects Australians with experienced, TPB-registered accountants who specialise in superannuation taxation, SMSF compliance, and high-net-worth tax planning. Whether you need to assess your Division 296 exposure, evaluate the cost base reset election, or restructure your superannuation strategy, the right accountant can make a material difference to your outcome.

Post a Brief on MyMoney® to describe your superannuation situation and receive tailored proposals from qualified accountants. Or browse our accountant professionals to find a specialist in superannuation taxation today.