Division 296 Is Now Law: What the $3 Million Super Tax Means for Your Retirement

Published 21 May 2026 · Updated 7 August 2026 · By Maciej Stanek & Imran Amjad, Véurr Financial Planning

I’m Maciej Stanek, Senior Financial Adviser and Director at Véurr Financial Planning. When we first published this guide, Division 296 was still a proposal — and the version that ultimately passed Parliament is meaningfully different from the version that generated the headlines. If your super balance is anywhere near $3 million, or you hold a Commonwealth defined benefit interest, the enacted law affects you from 1 July 2026.

We regularly meet senior public servants in CSS and PSS who assume this tax has nothing to do with them — until the notional value of their defined benefit interest is counted towards the threshold. Getting ahead of that conversation is the point of this article.

One important note before we continue: this is general information only. It is not personal financial advice. Your situation is unique. Before making any decisions about your superannuation, please speak with a qualified financial adviser who can model your specific position.

What Is Division 296?

Division 296 is an additional tax on superannuation earnings attributable to total super balances above a large super balance threshold, applying from 1 July 2026. For the 2026-27 financial year the thresholds are $3 million and $10 million, and both are indexed in line with CPI. Earnings attributable to the portion of your balance between $3 million and $10 million attract an additional 15% — a headline rate of up to 30% — and earnings attributable to the portion above $10 million attract a further 10% on top, a headline rate of up to 40%.

Under the standard framework, earnings within super are generally taxed at 15% in the accumulation phase, and pension-phase earnings are typically tax-free. Division 296 adds a second layer of tax for individuals whose Total Superannuation Balance (TSB) exceeds the large threshold. A few critical points from the outset:

• The tax applies to earnings, not your total balance. It is not a wealth tax.
• The enacted law uses a realised earnings approach — the taxation of unrealised paper gains proposed in 2023 did not survive into the final legislation.
• The thresholds are indexed to CPI, so they will rise over time rather than silently capturing more people through bracket creep.
• The tax applies across all of your superannuation interests combined, not per fund — including defined benefit interests, valued notionally.

What Changed Between the 2023 Proposal and the Law?

The redesign was announced by the government on 13 October 2025, and the legislation — the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 — received Royal Assent on 13 March 2026. Almost every feature that drew criticism was changed:

If you read commentary on Division 296 written before October 2025 — including the earlier version of this article — treat it as describing a law that never took effect.

Who Is Affected?

Division 296 affects a small proportion of Australians — broadly, those with the largest super balances. In our experience advising clients across Canberra, Sydney and Melbourne, the individuals most likely to be affected include:

• Senior Australian Public Service employees — particularly SES-band officers with long careers and generous employer contribution rates
• Members of Commonwealth defined benefit schemes (CSS and PSS) — this group faces a unique valuation issue we address below
• Medical professionals and specialists — often with decades of high contributions
• Business owners who have used super as a primary wealth-building vehicle
• Self-managed super fund (SMSF) trustees with concentrated property or equity holdings, and anyone who has received a large inheritance or insurance payout within super

If your total super balance is above $2.5 million, it is worth monitoring your position — a strong investment year plus contributions could carry you above the threshold at a future 30 June.

How Is the Tax Calculated?

The mechanics differ from the 2023 proposal, and from most of the explainers written about it. Under the enacted law:

Step 1: Your funds calculate and report your earnings

Each super fund you hold an interest in calculates your relevant super earnings for the income year and reports them to the ATO. Your total super earnings are the combined figure across all your funds. Because the law uses a realised earnings approach, movements in asset values alone are not what is being taxed.

Step 2: The proportion above the thresholds is worked out

The proportion of your earnings subject to Division 296 is based on your TSB reference amount:

(TSB reference amount − $3,000,000) ÷ TSB reference amount

For 2026-27, a transitional rule applies: the reference amount is simply your TSB at 30 June 2027. From 2027-28 onwards, it is the greater of your TSB just before the start of the year and at the end of the year. A separate proportion is worked out for any part of the balance above $10 million.

Step 3: The two-tier rates are applied

The liability is 15% of the earnings attributable to the proportion of your balance above $3 million, plus an additional 10% of the earnings attributable to the proportion above $10 million. The ATO then issues a Division 296 notice of assessment — payment and release options are covered in the FAQ below.

The Defined Benefit Question: CSS and PSS Members in Canberra

This is where Division 296 remains a live issue for many Canberra households, even after the redesign.

If you are a member of the Commonwealth Superannuation Scheme (CSS) or the Public Sector Superannuation Scheme (PSS), your Total Superannuation Balance includes a notional value for your defined benefit interest. That value is worked out under valuation rules prescribed by the regulations — it is not a balance you can see in an account or withdraw as a lump sum — and the 2026 law also changed how total super balance is defined for this purpose, introducing a new concept of “total super balance value”.

The practical consequence is unchanged: a long-serving CSS or PSS member’s notional defined benefit value — alone, or combined with an accumulation account, account-based pension or SMSF — can place them above $3 million even when their pension income appears moderate. Many members only discover this when the figure is first calculated.

The enacted law does, however, treat defined benefit interests differently in two ways that matter:

• Earnings are formula-based. For defined benefit interests not in the retirement phase (and certain other prescribed interests), your fund calculates relevant super earnings from the change in the TSB value of the interest under a specific formula in the law — not from investment returns you actually receive.
• Payment is deferred, not waived. You generally cannot use super from a defined benefit interest to immediately pay Division 296 tax. Where the tax relates to a defined benefit interest from which no end benefit has yet been paid, that portion is automatically deferred to a Division 296 deferred debt account until an end benefit becomes payable. Interest accrues on the deferred amount; you can pay it early voluntarily, or elect to release money from another super interest instead.

An important distinction. Division 296 should not be confused with the Transfer Balance Cap, which is a separate measure limiting how much can move into tax-free retirement phase. The general transfer balance cap is $2.1 million for 2026-27 (it is indexed, and was $2 million in 2025-26). Special valuation rules apply to defined benefit income streams under that cap too. Different cap, different consequence — you can have a Transfer Balance Cap issue without a Division 296 issue, and vice versa.

The key planning implication. The clients we can help most are those who have not yet activated an indexed pension and whose projected entitlement would place them above the threshold once valued. Before activation, there is still room to discuss structure, timing and contribution settings; once an indexed pension is activated, restructuring options narrow sharply. That conversation belongs with a financial adviser — before activation, not after.

What Can You Do About It?

There is no way to opt out of Division 296 if your balance exceeds the threshold. There are, however, legitimate settings worth reviewing with your adviser. The right approach depends entirely on your personal circumstances.

Review your contribution strategy

If your balance is near $3 million, the timing and amount of future contributions may be worth reconsidering — salary sacrifice arrangements, personal deductible contributions, and employer contributions above the minimum.

Consider alternative wealth structures

For some clients, structures alternative to (or alongside) superannuation — such as company structures for investment activities, or annuity products for predictable income — may produce a better long-term outcome. Whether any of them suits you is a conversation for your adviser before any decision is made.

Consider withdrawal and commencement timing

For those already retired or approaching it, the timing of withdrawals — and of commencing an income stream — can influence the TSB tested at a future 30 June. This is particularly relevant if your balance sits marginally above the threshold.

Spouse contribution splitting

If your spouse has a lower super balance, splitting eligible contributions may help keep both balances below the threshold. This strategy has limitations and eligibility requirements to discuss with your adviser.

Understand the new relevance of realisation timing

Because the enacted law taxes realised earnings, the timing of asset sales within a fund matters in a way it would not have under the original proposal. This is a portfolio conversation for your adviser, not a reason to change investments on its own.

Know your first test date: 30 June 2027

The first Division 296 assessment is based on your TSB at 30 June 2027 — not 30 June 2026, as the original proposal would have had it. That pushback is a genuine planning window. Anything that affects your balance trajectory or earnings profile for 2026-27 is best considered well before that date.

Common Misconceptions

“It taxes my unrealised paper gains”

Not under the enacted law. The 2023 proposal would have included unrealised gains in the earnings calculation — the single most criticised feature of the original design. The law as passed uses a realised earnings approach.

“It’s a tax on my total super balance”

No. It is a tax on earnings attributable to the portion of your balance above the threshold, worked out proportionally. Your balance below $3 million continues to be taxed under the standard settings.

“The threshold will quietly capture everyone over time”

The bracket-creep criticism applied to the 2023 proposal, which had an unindexed threshold. As enacted, both the $3 million and $10 million thresholds are indexed to CPI.

“I’ll just move money out of super to avoid it”

Withdrawals remain subject to their own rules, including preservation requirements if you have not met a condition of release, and defined benefit pensions in payment cannot simply be unwound. Any withdrawal decision belongs in the context of your full financial plan, not solely Division 296.

Why a Review Is Worth Scheduling

The 2026-27 financial year — which began on 1 July 2026 — is the first year Division 296 applies, and your balance at 30 June 2027 is what will be tested. A review is worth scheduling if:

• Your total super balance is above $2.5 million (approaching the threshold)
• You are a CSS or PSS member and unsure what your notional defined benefit value is
• You have an SMSF and want to understand how the realised earnings approach affects you
• You are weighing up when to activate a defined benefit pension
• You have been salary sacrificing heavily and are unsure of your current TSB

The earlier you understand your position, the more options are available. Some settings cannot be adjusted retrospectively once a financial year has closed.

Frequently Asked Questions

When will I receive my first Division 296 assessment?

The first financial year Division 296 applies to is 2026-27. For that year only, the test is whether your total super balance exceeds the $3 million threshold at 30 June 2027. After the year ends, your super funds report your relevant super earnings to the ATO, the ATO calculates any Division 296 tax, and issues you a notice of assessment. Payment is generally due 84 days from the date of the notice.

Can I pay Division 296 tax from my super fund?

Generally yes. Once you receive a Division 296 notice of assessment, you have up to 60 days to elect to release money from one or more of your super funds, or you can pay from personal funds. Defined benefit interests are treated differently: you generally cannot use super from a defined benefit interest to pay immediately, and where no end benefit has yet been paid from that interest, the tax attributable to it is automatically deferred — with interest accruing — until an end benefit becomes payable. You can pay a deferred amount early, or elect to release money from another super interest. How you pay affects your balance and retirement income, so discuss it with your adviser.

I’m a CSS or PSS member with a modest pension. Am I affected by Division 296?

Potentially yes. Your total super balance for Division 296 purposes includes a notional value for your defined benefit interest, worked out under valuation rules prescribed by the regulations — not a balance you can see in an account. That notional value, alone or combined with an accumulation fund or SMSF, can exceed $3 million even when your pension income appears moderate. Ask your fund or check your ATO online account via myGov, and have a financial adviser interpret the figure if it is unclear.

What if my super balance drops below $3 million next year?

Division 296 is assessed year by year. For the first year, 2026-27, only your total super balance at 30 June 2027 is tested — if it is at or below the threshold at that date, you are not assessed for that year. From 2027-28 onwards, the test uses the greater of your balance just before the start of the year and your balance at the end of the year, so dipping below $3 million during a year does not necessarily remove liability for that year if you started it above the threshold with positive earnings.

Does Division 296 apply to SMSFs?

Yes. Division 296 is assessed across all of your Australian super interests combined — SMSFs, retail funds, industry funds, and defined benefit schemes. SMSFs report the relevant super earnings to the ATO through the SMSF annual return. One important change from the original 2023 proposal: the enacted law uses a realised earnings approach, so the widely criticised problem of being taxed on unrealised paper gains — a particular concern for SMSF trustees holding property — was removed from the final design.

Are the $3 million and $10 million thresholds indexed?

Yes. Both the large super balance threshold ($3 million for 2026-27) and the very large super balance threshold ($10 million for 2026-27) are indexed in line with CPI. This is a change from the 2023 proposal, under which the $3 million threshold was not indexed and more people would have been drawn into the tax over time through bracket creep.

General Advice Warning

The information in this article is general in nature and has been prepared without taking into account your objectives, financial situation or needs. Before acting on any information in this article, you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. You should obtain and consider the relevant Product Disclosure Statement (PDS) before making any decision about a financial product.

Véurr Financial Planning Pty Ltd (ABN 16 635 751 423) is a Corporate Authorised Representative (No. 1307015) of Lifespan Financial Planning Pty Ltd (ABN 23 065 921 735, AFSL 229892). This article does not constitute personal financial advice. Any examples are illustrative only and do not reflect the circumstances of any particular individual. Division 296 remains subject to legislative and regulatory refinement — you should confirm current rules with the ATO or your adviser before taking action.

Sources and further reading: ATO — Better targeted superannuation concessions · ATO — Division 296 tax · Treasury — Reforms to support low-income workers and build a stronger super system · Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 · CSC — CSS · CSC — PSS · ATO — Transfer balance cap