Navigating the Shift: Understanding the New Division 296 Super Tax

The landscape for high-balance superannuation in Australia has shifted significantly. Following intense industry consultation and a major redesign in late 2025, the government has released the draft Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2025.

For individuals with substantial super balances, the "new" Division 296 is a different beast than what was first whispered about in 2023. Here is a breakdown of the evolution of this tax and what you need to know before the 1 July 2026 commencement.

The Evolution: What’s Changed?

The original proposal faced heavy criticism, primarily for its plan to tax "paper profits." The revised legislation represents a pragmatic pivot toward existing tax principles.

Feature	Original Proposal (2023)	New Draft Legislation (2026)
Primary Target	Balances over $3 Million	Balances over $3 Million
Taxable Earnings	Unrealised Capital Gains (Paper Profits)	Realised Earnings (Income & Sales)
Thresholds	Single $3M Threshold (Unindexed)	Two-Tiered ($3M & $10M) and Indexed
Additional Tax Rate	15% flat (above $3M)	Tiered: 15% (up to $10M); 25% (over $10M)
Start Date	1 July 2025	1 July 2026
Cost Base	Original Purchase Price	Optional Reset to 30 June 2026 Market Value

Key Pillars of the New Rules

1. Realised vs. Unrealised: The Big Win

The most controversial element—taxing assets that haven't been sold—has been scrapped. Under the new rules, "Division 296 Earnings" will be calculated based on the fund's actual taxable income. This includes dividends, interest, rent, and realized capital gains.

2. The Two-Tiered Threshold & Indexation

The tax is now more progressive. While the $3 million threshold remains, a second "ultra-high" threshold of $10 million has been introduced.

• $3M – $10M: Additional 15% tax.

• Above $10M: Additional 25% tax (15% base + 10% surcharge).

Crucially, these thresholds are no longer "frozen." They will be indexed in line with the CPI (rising in $150k and $500k increments, respectively), protecting against "bracket creep" over time.

3. The 2026 Cost Base Reset

To ensure people aren't taxed on gains that happened before the law started, SMSFs can opt in to reset the cost base of their assets to their market value as of 30 June 2026.

Note: This is an "all or nothing" choice. If you opt in, you must reset all assets, even those currently in a loss position.

4. The "Higher Of" Integrity Measure

To prevent people from dodging the tax by withdrawing large sums just before the end of the financial year, the ATO will generally look at your Total Super Balance (TSB) at both the start and end of the year. If either is above the threshold, you may be in the net.

• Transitional Relief: For the first year (2026-27), the ATO will only look at your balance on 30 June 2027. This gives you a window to restructure or withdraw funds before the first assessment.

Calculation Snapshot: The Cumulative Effect

If an individual has a TSB of $12.2 million and generates $2 million in realized earnings, the tax isn't just a flat rate. It is apportioned based on how much of that balance sits in each "bracket."

In this scenario, the individual would pay 15% on the portion of earnings attributed to the $3M–$10M bracket and 25% on the portion attributed to the $10M+ bracket. For a $12.2M balance, this could result in an additional tax bill of approximately $262,295 - an effective surcharge of 13% on total earnings.

Need help?

While the legislation is still progressing through Parliament, the proposed 1 July 2026 commencement date means the opportunity to simply wait and see is narrowing. If you may be affected, we recommend speaking with us to review how you will be impacted and identify any opportunities to minimise or avoid this impact.