Division 296 is the headline superannuation reform for FY2026-27: from 1 July 2026, individuals with a Total Super Balance (TSB) over $3 million pay an additional 15% tax on the earnings attributable to the excess — rising to 25% in total above $10 million. Here's how it actually works.

This is general information only — it isn't personal financial or tax advice. Division 296 is genuinely complex, and how it affects you depends on your own balance, fund structure and asset mix. Speak with a licensed adviser or registered tax agent before acting.

What Division 296 actually taxes

Division 296 doesn't tax your balance — it taxes a proportion of your fund's earnings for the year, based on how much of your TSB sits above $3 million. If your TSB also exceeds $10 million, a further additional 10% applies to the proportion of earnings above that second threshold — 25% in total, on top of the fund's normal 15% earnings tax in accumulation phase.

See the ATO's Better Targeted Super Concessions is law page for the official mechanics, and Ord Minnett's Division 296 explainer for a practitioner's walkthrough.

The formula, in plain English

The proportion of earnings taxed above $3m is calculated as:

Proportion above $3m = (TSB at 30 June − $3,000,000) ÷ TSB at 30 June

That proportion is then applied to the fund's earnings for the year to work out the dollar amount subject to the extra 15%. For example, someone with a $4 million TSB has 25% of their balance above the $3m threshold `(4,000,000 − 3,000,000) ÷ 4,000,000`, so 25% of that year's fund earnings are taxed at the additional 15% rate — the rest of the earnings are taxed as normal. The same proportion-above-$10m calculation applies for the further 10% tier.

Realised earnings only — and the CGT discount still applies

Division 296 only counts realised earnings actually received by the fund — dividends, interest, trust distributions, rent and realised capital gains. Unrealised growth in asset values doesn't count until you actually sell. Where an asset has been held over 12 months, the standard one-third CGT discount still applies before the Division 296 calculation is done — this is a deliberate design choice, and a change from the original 2023 proposal which would have taxed unrealised gains directly. See Grant Thornton's latest Division 296 update for background on how the policy evolved.

Both thresholds are now indexed

Unlike the original proposal, both thresholds are CPI-indexed, but only in fixed increments: the $3 million threshold moves in $150,000 steps, and the $10 million threshold moves in $500,000 steps. Indexation has to clear the next full increment before the threshold actually moves — so the numbers won't creep up every year, only when accumulated CPI growth justifies a full step. See Lexology's rundown of the Division 296 indexation rules.

A one-year-only transitional rule

Normally, Division 296 will test your TSB using the greater of your opening or closing balance for the year. But for the 2026-27 year only, a transitional rule applies: your TSB is measured solely at 30 June 2027. That means if you're over $3 million on 1 July 2026 but manage to drop below the threshold by 30 June 2027, no Division 296 tax applies for that year at all. This is a genuine one-off planning window — the standard opening/closing test resumes from 2027-28. See Sladen Legal's explainer on the transitional rules and Cleardocs' Division 296 overview.

The SMSF cost-base reset election

SMSF trustees get a one-off concession: an election to reset the cost base of the fund's CGT assets to their market value as at 30 June 2026, for Division 296 purposes only. Key points to understand before considering it:

  • It's all-or-nothing — every CGT asset in the fund is reset, or none are. You can't pick and choose individual assets.
  • It's made via the approved form, lodged with the fund's 2026-27 annual return — and once made, it's irrevocable.
  • It only affects the Division 296 earnings calculation — your fund's ordinary CGT cost base is unchanged, so trustees end up keeping two parallel sets of records for the same assets.

The effect is that pre-existing unrealised gains built up before 30 June 2026 aren't swept into the new realised-earnings calculation when those assets are eventually sold.

What to do before 30 June 2027

  • Get an estimate of your Total Super Balance and how close it sits to $3 million (or $10 million).
  • If you run an SMSF, discuss the cost-base reset election with your accountant well before your 2026-27 return is due — it's irrevocable once lodged.
  • If your balance is near the $3m line, understand the one-year transitional test before assuming you're locked into Division 296 for this financial year.
  • Review your fund's realised-earnings profile (planned asset sales, distributions) with an adviser, since the tax is timing-sensitive in a way ordinary super tax isn't.
The first Division 296 assessments won't issue until after 30 June 2027, based on 2026-27 earnings. That means this financial year is a genuine planning window, not an immediate deadline — but decisions like the SMSF cost-base election still need to be made before 30 June 2026 or lodged with the 2026-27 return, so it pays not to leave it too late.

Sources

Division 296 only bites above $3 million — but for anyone near that line, this year's transitional rule and the SMSF cost-base election are decisions worth making deliberately, not by default.