Division 296 Explained: What the Proposed $3 Million Super Tax Means for Australians
- Lucas Seow CPA
- Oct 13
- 3 min read
Updated: 7 days ago
The Australian Government has proposed significant changes to Division 296, also known as the $3 million super tax, under the Better Targeted Superannuation Concessions (BTSC) policy.
These changes are intended to affect Australians with very large super balances and are scheduled to begin from 1 July 2026, subject to final legislation.
This article explains the key points of the proposed changes, how they might impact superannuation and SMSF trustees, and what to consider in general terms.
Important: The measures discussed below are proposals only and are not yet law.
What is Division 296 and Who Does It Affect?
Division 296 is a proposed additional tax on earnings that are attributable to the portion of an individual's total super balance above $3 million. Unlike the standard 15% tax on super earnings, this tax targets very high balances in SMSFs, retail, and industry funds.
The proposal is expected to affect only a small proportion of Australians with high super balances, because it is calculated on the slice of a person's balance above the threshold, not on their entire super.
Key Changes to the $3 Million Super Tax Proposal
The Government has made several significant adjustments to address concerns raised about the original proposal. The most notable change is that the additional tax will now apply only to future realised earnings, not to unrealised or "paper" gains.
Realised earnings include dividends, interest, rent, and capital gains from sold assets, so members are taxed only on earnings that form part of the fund’s taxable income.
A two‑tier structure is proposed. Earnings linked to the portion of a balance between $3 million and $10 million would face an additional tax rate, and an even higher additional rate would apply to earnings linked to balances above $10 million.
members will generally be taxed only on gains that have been converted into actual income.
In addition, a second tier has been introduced. Earnings linked to super balances above $3 million will face a higher tax rate, while those above $10 million will attract an even higher rate.
These thresholds will be indexed over time to keep pace with inflation, with the $3 million threshold increasing in $150,000 steps and the $10 million threshold in $500,000 steps, once cumulative CPI increases are large enough.
Timing, Administration and Defined Benefit Interests
Under the revised proposal, the new rules are set to take effect from 1 July 2026, with the first Division 296 assessments expected after the 2026–27 year (for example in the 2027–28 financial year).
The Australian Taxation Office (ATO) will rely on super funds to report realised earnings for members exceeding the thresholds. The ATO will then calculate the portion of each member’s balance above $3 million or $10 million and issue individual assessments.
Individuals would be able to pay the extra tax personally or request a release from super, in a manner broadly similar to existing Division 293 arrangements. The government has also confirmed that defined benefit interests will be treated in a manner intended to achieve broadly equivalent outcomes, though detailed rules are still being developed.
How This Might Affect SMSF Trustees and Advisers
For SMSF trustees and advisers, these proposed changes highlight the potential for higher taxes on very high super balances, particularly once earnings are realised. Timing of asset sales, distributions, and reporting may require careful consideration. It is important to stress that Division 296 is still a proposal, and key details may change before legislation is finalised.
Decisions about your super should not be based solely on this announcement, without personalised advice.
Still a Proposal, Not Yet Law
The revised Division 296 measures remain proposed, not law. Further consultation is expected with industry stakeholders and superannuation professionals, and the final legislation may differ in how the tax is calculated, administered and reported. Until the law is passed and detailed ATO guidance is available, Division 296 should be treated as indicative only, not as a settled set of rules.
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IMPORTANT DISCLAIMER: This article is a plain-English summary of government announcements and public commentary as at 13 October 2025. It is general information only, does not consider your personal financial circumstances, and is not financial, legal, tax, or SMSF advice. While we strive to provide accurate information, we cannot guarantee its accuracy or completeness. The content may change over time, and you should not rely on it as your sole source of information. Before making any decisions about your superannuation, SMSF, or investments, you should seek guidance from a licensed financial adviser, tax adviser, or other suitably qualified professional and independently verify any information relevant to your circumstances.
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