Division 296 is now law. From 1 July 2026, people with a large total super balance pay an extra tax on a portion of their super earnings. The Australian Taxation Office (ATO) pages on this tax were last updated on 3 November 2026.

For the 2026-27 income year the large super balance threshold (LSBT) is $3 million, and the very large super balance threshold (VLSBT) is $10 million. An additional 15% applies to the proportion of earnings that relates to the part of the balance above $3 million. A further additional 10% applies to the proportion of earnings that relates to the part of the balance above $10 million.

This is not a 15% tax on the whole balance, and it is not a tax only on dollars earned above $3 million as if the fund were split into two accounts. It is a proportion of the year's total super earnings, worked out from the balance that exceeds each threshold. Older commentary that described a proposed design, or that stopped at a single $3 million test, is out of date.

This explainer follows the official ATO method and worked examples. It is general information only, and it is not a tax calculation you should lodge from.

When does the tax apply?

For 2026-27, the ATO only looks at whether your total super balance (TSB) at 30 June 2027 is greater than the $3 million LSBT. That is a transitional rule for the first year.

From 2027-28 onwards, the tax can apply if your TSB just before the start of the income year, or your TSB at the end of the year, exceeds the threshold. The ATO uses a TSB reference amount, which for 2026-27 is your TSB at the end of that year, and from 2027-28 is the greater of the opening and closing TSB.

The official Mary example shows why the first-year rule matters. Mary had a TSB of $3,150,000 at 30 June 2026, which would have been over the threshold if the later-year test had applied. By 30 June 2027 her TSB had fallen to $2,950,000. Because 2026-27 looks only at the year-end balance, she is not assessed for Division 296 for that year.

The official Eliza example shows the later-year rule going the other way. Eliza's TSB was $3,150,000 at 30 June 2027 and $2,950,000 at 30 June 2028, and her total super earnings for 2027-28 were greater than nil. From 2027-28 the greater of the two balances is used, so she is assessed for that year even though she finished below $3 million.

If your TSB is under the LSBT at the relevant testing times, you will not have taxable super earnings for Division 296, and you will not be assessed for that year.

How is the tax calculated?

Your funds calculate "relevant super earnings" for each interest or certain death-benefit income streams and report them to the ATO. The ATO adds those amounts to arrive at your total super earnings, works out the proportion of your TSB reference amount that sits above each threshold, and applies the extra rates to that share of the earnings.

The official formulas, rounded to two decimal places, are:

  • proportion over the LSBT = ((TSB reference amount minus the large super threshold) divided by the TSB reference amount) times 100
  • proportion over the VLSBT = ((TSB reference amount minus the very large super threshold) divided by the TSB reference amount) times 100

Taxable super earnings are total super earnings multiplied by the LSBT proportion. The very large component is total super earnings multiplied by the VLSBT proportion. The tax is 15% of the first of those amounts, plus 10% of the second if the VLSBT is exceeded.

Limited recourse borrowing arrangement (LRBA) amounts are disregarded when the TSB is calculated for Division 296, even though they are sometimes included in TSB for other super purposes. If your fund uses borrowings, the figure that matters for this tax may be lower than a TSB you have seen in another ATO statement. Ask the fund if you are unsure.

Your funds report the earnings. You do not prepare a separate Division 296 return in the same way as your income tax return. The ATO calculates the tax and issues a notice of assessment.

Official worked examples

Jordan, 2026-27, balance above $3 million only

Jordan has one super interest with a TSB of $4,000,000 on 30 June 2027. His fund reports relevant super earnings of $100,000, which is also his total super earnings.

The proportion above the LSBT is (($4 million minus $3 million) divided by $4 million) times 100, which is 25%. Taxable super earnings are $100,000 times 25%, which is $25,000. Division 296 tax is $25,000 times 15%, which is $3,750.

Kelly, 2026-27, balance above $10 million

Kelly has two interests in her fund. Her TSB on 30 June 2027 is $12,000,000. Her fund reports relevant super earnings of $500,000, which is her total super earnings.

The proportion above the LSBT is (($12 million minus $3 million) divided by $12 million) times 100, which is 75%. The proportion above the VLSBT is (($12 million minus $10 million) divided by $12 million) times 100, which is 16.67%.

Taxable super earnings are $500,000 times 75%, which is $375,000. The very large component is $500,000 times 16.67%, which is $83,350. Tax is $375,000 times 15%, or $56,250, plus $83,350 times 10%, or $8,335, which is $64,585.

Notice that the 10% layer is additional, not a replacement for the 15% layer. The part of the balance above $10 million is also above $3 million, so both rates can apply to overlapping proportions of the same earnings.

Threshold indexation, payment and exceptions

The LSBT and VLSBT are indexed in line with the consumer price index, in increments of $150,000 and $500,000 respectively. For 2026-27 they remain $3 million and $10 million. Later years may be higher. Do not assume the 2026-27 figures last forever.

Assessments for 2026-27 will begin issuing in the later half of the 2027-28 income year. The tax is generally due 84 days after the notice of assessment. You can pay it yourself, or elect within 60 days of the notice to release money from one or more super funds to pay it. If you do not pay on time and do not make that election, the Commissioner may ask a fund to release an amount to pay the debt. If you lodge in myTax, the notice will go to your myGov inbox unless your tax agent is set up to receive it.

Defined benefit interests that have not yet paid an end benefit can have the related Division 296 tax deferred. Interest can apply if a deferred amount is not paid by the later due date, and you can choose to pay a deferred amount earlier.

The ATO says you are excepted from paying Division 296 tax if you:

  • are a child recipient of a super income stream at any time during the income year
  • have received a structured settlement contribution made to you as a payment for a personal injury, in the income year or any earlier income year
  • die in the 2026-27 income year

There are also excluded-earnings rules for certain office holders and judges, foreign super funds and non-complying plans, and specific rules for defined benefit interests and departing temporary residents. Those are outside the scope of this general explainer. If any of them might apply, use the ATO pages or get advice.

Some funds, including some SMSFs, also have choices about cost-base or CGT adjustments connected with the new law. Those elections are made by the fund under the official rules, not by a rule of thumb in an article.

What this tax is not

It does not replace the 15% tax on fund earnings in accumulation, or the extra Division 293 tax on concessional contributions for higher-income earners. It is a further tax on a proportion of earnings once the balance is large.

It is not applied automatically to downsizer or carry-forward contributions as a special levy. Those contributions can, however, increase the balance that is tested at 30 June.

A balance of $3 million or $10 million is also not an official target for retirement planning. Most super accounts are well below these thresholds. The super calculator is for contribution and balance projections under the usual caps. It does not estimate Division 296.

Frequently asked questions

Is this still only a proposal?

No. The ATO states that the measure is now law and applies from 1 July 2026, for the 2026-27 income year onwards.

Do unrealised gains get taxed?

The tax is imposed on "taxable super earnings" and "relevant super earnings" as reported by your funds under the official method, not on a tax-free withdrawal and not on your personal tax return's capital gains line. The detailed earnings calculation sits with the fund and the ATO. Do not assume it matches an annual member statement line for line, and do not assume it is limited to realised gains, without reading the official calculation pages or asking the fund.

What if my balance is over $3 million at the start of 2026-27 but under it at 30 June 2027?

For 2026-27 only, the ATO looks at the 30 June 2027 balance. The official Mary example is not assessed for that year, because she finished at $2,950,000. From 2027-28, the greater of the opening and closing balances is used, as in the official Eliza example.

General information warning

This article is general information only. It is not personal financial product advice or tax advice, and it is not a Division 296 assessment. It does not take into account your objectives, financial situation or needs. The thresholds, the earnings method, exceptions and payment rules are set by law and by the ATO, and they can be technical for defined benefit interests, SMSFs and borrowed amounts. Confirm the current ATO pages, and consider speaking with a registered tax agent or a licensed adviser, before you change a contribution, a pension or a fund structure.

Sources

Last reviewed: November 2026.