Division 296 Tax Is Now Law: What It Means for Your Superannuation Strategy

After months of legislative debate, the Federal Government has passed Division 296 legislation, introducing an additional tax on large superannuation balances from 1 July 2026. Under the new rules, individuals with super balances exceeding $3 million may be subject to additional tax on the earnings attributed to the portion above the threshold. With the start date fast approaching, now is the time to review how this may affect your retirement strategy, wealth structures, and estate planning.

What You Need to Know

Division 296 introduces a two-tier framework for additional tax on earnings inside large super funds:

Inflation Adjustment Provisions

Both thresholds will be adjusted over time to account for inflation:

•       The $3 million threshold will increase in increments of $150,000

•       The $10 million threshold will increase in increments of $500,000

This inflation adjustment provision was added as part of the revised legislation, providing some long-term certainty around the thresholds.

How Division 296 Could Affect You

If your total super balance exceeds $3 million, you will pay an additional 15% tax on the earnings generated by the portion above that threshold. This tax is deducted directly from your super fund, reducing your balance and the compounding growth that builds your retirement savings over time.

The additional tax applies only to realised gains, not unrealised gains. This means the tax is generally triggered when investments are sold, and the gain is realised, rather than being applied to paper gains from market movements. This represents a significant change from the earlier proposal and reduces the risk of tax being payable on assets that have increased in value but have not yet been sold.

The implications go well beyond your fund’s returns. Division 296 may prompt you to reconsider:

•       How much wealth you hold inside versus outside super

•       When and how you draw down your balance

•       How your assets are structured for estate planning

•       Whether your fund holds illiquid assets such as property, the tax is owed regardless of whether earnings were received as cash, which could force a poorly timed sale

Don’t wait until you cross the threshold

You don’t need to be above $3 million today for this to matter. Contributions, investment growth, and asset revaluations can push your balance across the threshold faster than expected. If you’re approaching that level, now is the time to plan.

The Once-Off CGT Cost Base Reset

Division 296 taxes earnings on your super balance above $3 million, and capital gains count as earnings. Without any relief, gains that have been building up inside your fund for years, even decades, would all be caught by the new tax.

The cost base reset addresses this by allowing you to update the starting value of eligible assets to their market value as at 30 June 2026, so only growth after that date is subject to Division 296.

Three critical things to know:

•       The reset is not automatic. You must actively elect to use it.

•       It is a once-only opportunity that expires on 30 June 2026.

•       If you miss the window, it cannot be revisited.

If you hold assets in super that have grown considerably over time, this is worth discussing with us before the deadline.

The Time to Review Your Strategy Is Now

With the rules commencing 1 July 2026, individuals with significant superannuation balances should begin planning early. A proactive review can help:

•       Assess your potential exposure to Division 296

•       Ensure your wealth structure remains tax-efficient

•       Make an informed decision on the once-off CGT cost base reset before 30 June 2026

•       Align your retirement and estate planning objectives with the new landscape

Ready to review your strategy?

If you would like to understand how Division 296 may affect your superannuation and broader wealth strategy, our team is ready to assist. Contact us today to arrange a personalised review.

This article is for general information purposes only and does not constitute financial, legal, or tax advice. Please seek professional advice before making any decisions regarding your superannuation or investment strategy.