Division 296: The New Tax on Super Balances Over $3 Million

Disclosure: The views expressed in this post are the opinions of the author and are intended for general informational and educational purposes only. They do not constitute financial advice. Full disclaimer →

The division 296 super tax takes effect from 1 July 2026, adding an earnings tax to super balances above $3 million — but not on the basis most early coverage of this policy originally described.

For most people building toward FIRE, this doesn’t apply for years, if ever. For the minority tracking toward a very large balance — particularly Fat FIRE households — it’s worth understanding precisely, because the final version differs meaningfully from the original 2023 proposal.

The division 296 super tax that ultimately passed bears little resemblance to the unrealised-gains proposal that caused most of the initial concern.

Division 296 Super Tax: What It Actually Taxes

Division 296 applies an additional tax to superannuation earnings attributable to the portion of a balance above $3 million: 15% extra on earnings attributable to balances between $3 million and $10 million, and 25% extra on earnings attributable to balances above $10 million — on top of the standard 15% earnings tax already applied inside super, for a combined 30% and 40% respectively on the affected portion.

The most important structural detail: the tax applies to realised earnings — dividends, interest, rent, and realised capital gains — not unrealised gains. The original 2023 proposal would have taxed unrealised gains (paper increases in value); the version that passed removes that feature entirely.

The division 296 super tax name refers only to this extra earnings levy — it doesn’t rename or replace the standard 15% tax that already applies inside super.

Timing and Assessment

Division 296 became effective 1 July 2026. The first assessment covers the 2026–27 financial year (1 July 2026 to 30 June 2027) and is based on earnings realised during that period. The $3 million threshold is indexed, meaning it will rise over time rather than staying fixed in dollar terms indefinitely.

Every year going forward, the division 296 super tax threshold moves with indexation, so a balance comfortably below $3 million today can still eventually be affected without any change in contribution behaviour.

Who This Actually Affects

At $3 million, this policy sits well above the balance most FIRE-oriented Australians are targeting. How Much Super Do I Need to Retire at 50, 55, or 60? shows that even a $100,000/year lifestyle retiring at 55 targets roughly $1.78 million in super at that age — meaningfully below the threshold. It becomes relevant mainly for Fat FIRE households with high spending targets, high-income professionals with decades of maximum contributions, or those running an SMSF holding substantial direct property or business assets inside super.

For nearly everyone reading this, the division 296 super tax simply won’t apply for a very long time, if ever — but it’s worth flagging early for anyone deliberately building toward a large balance.

Frequently Asked Questions

Does Division 296 tax unrealised gains?

No. The version of the policy that passed taxes realised earnings only — dividends, interest, rent, and gains actually realised on sale. This was a significant change from the original 2023 proposal, which would have taxed unrealised gains.

When does Division 296 start applying?

From 1 July 2026, with the first assessment based on the 2026–27 financial year’s realised earnings.

Is the $3 million threshold indexed?

Yes — unlike the Division 293 threshold, which has stayed fixed at $250,000, the Division 296 threshold is indexed and will rise over time.

Division 296 tax rates, thresholds, and assessment mechanics are set by legislation and subject to further change — figures in this post reflect rules confirmed current as of August 2026. This content is specific to Australian superannuation law.

Written by The Founder — currently employed full-time and building toward $20,000/month in passive income.

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