What Division 296 means for your retirement savings
Changes to Australia’s superannuation tax rules are now law and, while they don’t affect everyone, they could have a meaningful impact on those with larger super balances. From 1 July 2026, the introduction of Division 296 means higher taxes will apply to earnings on superannuation balances above a set threshold. With plenty of commentary – and confusion – around what this change means, it’s important to understand who is affected, how the tax works, and whether it could influence your long-term retirement planning.
The Division 296 superannuation tax passed both houses of Parliament on 11 March 2026 and is expected to become law following royal assent.
What is Division 296 tax?
Division 296 is a new tax that targets individuals with a total combined superannuation balance exceeding $3 million. New tax rates will be applied to superannuation earnings, with those above $3 million taxed at 30% and those above $10 million taxed at 40%. Individuals may choose to release the tax from their superannuation fund or pay it themselves.
The following table shares the new, tiered tax rate thresholds:
The $3 million and $10 million thresholds will be indexed with inflation in increments of $150,000 and $500,000 respectively.
Date of effect
The tax applies to earnings from the 2026-27 financial year.
To make the new superannuation tax rules easier to understand, it can help to look at a real‑world example. This example shows how Division 296 may apply to someone with a higher super balance, even when they have planned carefully and acted within the rules.
Example:
Like many of our clients, Sarah has spent years building her superannuation, with the goal of a comfortable retirement. By contributing consistently over time, she has grown her superannuation to $4 million. During the year, her super balance increases by $200,000 due to investment growth.
As 25 per cent of her balance exceeds the $3 million threshold, Division 296 is triggered, and 25 per cent of the earnings ($50,000) are subject to the additional 15 per cent Division 296 tax.
This results in an additional tax of $7,500.
While the changes won’t affect most Australians, Sarah’s example illustrates how the new tax works in practice and why understanding the details can provide confidence and peace of mind when reviewing your own retirement position.
Unrealised Capital Gains
The legislation allows a “cost base reset” election at 30 June 2026. This means that the new Division 296 tax will apply only to future growth, not to investment gains built in prior years.
Importantly, this reset applies only for Division 296 purposes and does not change the cost base for Capital Gains Tax purposes.
The election must be made in the 2027 superannuation fund tax return.
Transitional Provisions
For the first year of operation (2026–27), special rules apply:
- The taxable proportion will be based on the member’s total super balance at 30 June 2027.
- The opening balance at 1 July 2026 is not used in determining the taxable proportion for that year.
From the 2027–28 financial year onwards, the standard calculation method will apply (the greater of the opening or closing Total Superannuation balance).
This may provide an opportunity to withdraw funds or sell assets with large unrealised losses during the 2026–27 year to reduce or eliminate Division 296 exposure.
What you should do now
In many cases, paying the Division 296 tax may be preferable to reducing your superannuation balance to avoid it, so it is important to carefully consider any strategy.
Speak to your Holman Hodge adviser about undertaking a review of your specific circumstances to determine what works best for you.