Division 296 Tax: How the $3m superannuation tax changes affect you
Updated 26 January 2026
Upcoming legislative reforms may have implications on your superannuation. The proposed Better Targeted Superannuation Concessions Tax (BTSC Tax), commonly referred to as Division 296, is set to take effect on 1 July 2026 and will introduce higher tax rates for individuals with Super balances exceeding $3 million.
Here's what you need to know about the Division 296 superannuation changes, and how Ord Minnett can help find the right strategy for you.
What is the new
Division 296 Tax?
The Better Targeted Superannuation Concessions Tax (BTSC Tax), commonly referred to as Division 296, is a new tax proposed by the Labor government, which released updated information on its structure on 19 December 2025. If legislated, it will apply to individuals with superannuation balances exceeding $3 million.
Division 296 is set to tax superannuation earnings attributable to balances between $3 million and $10 million an additional 15%. It is also set to tax earnings attributable to balances over $10 million an additional 25%.
The thresholds will be indexed and will only apply to earnings realised from 1 July 2026.
Division 296 remains a personal tax, separate from the existing Super fund tax, and applies to individuals rather than superannuation funds. The tax applies to individuals, whether they invest with a Super fund or have a self-managed super fund (SMSF).
Where assets have been held more than 12 months, the standard one‑third Capital Gains Tax discount continues to apply before Division 296 calculations.
The grandfathering of assets will be allowed for small Super funds, such as SMSFs, however importantly, individuals must elect to apply the option by the due date for lodging the tax return for the 2026-27 Financial Year. This option is not available for standard Super fund accounts such as industry funds.
As part of the tax, the Government will also boost the low-income superannuation tax offset, from $500 to $810, and increase the eligibility threshold from $37,000 to $45,000.
If you are looking for more information, you can download a complimentary copy of our Division 296 Tax Quick Reference Guide below.
Get the Division 296 Tax Quick Reference Guide
If you are looking for more information, you can download a complimentary copy of our Division 296 Tax Quick Reference Guide. It includes an overview of the legislation, key features, and important considerations.
Fill out the form and we’ll send your free guide to your inbox.
When will Division 296 come into effect?
The proposed Division 296 tax Bill has not yet been passed into law. Assuming the measure passes through parliament, the first assessment for Division 296 will be based on an individual's superannuation earnings at the conclusion of the 2026/27 financial year (1 July 2026 and 30 June 2027).
Therefore, an individual would be required to pay the tax from 1 July 2027.
Remember that until Division 296 comes into law, the exact contents of the Bill and the function of the tax could change.
Can you withdraw funds to avoid Division 296?
While it is possible to withdraw funds to avoid Division 296 taxes, this may result in other financial liabilities, including capital gains tax or higher personal tax rates. If you withdraw funds prior to 30 June 2027, bringing your Super balance below $3 million, you can reduce or eliminate your tax liability under Division 296.
To do this, you must meet the conditions for Super withdrawal. It's crucial that you take the time to consider all of the potential impacts of any decisions you make.
We recommend speaking with a financial adviser before making any decision to withdraw from your Super to ensure you’re choosing the most tax-effective option.
Here's an example of what it looks like in practice for a retiree in the following situation:
Example 1
Example 2
End of year TSB (30 June)
$4,500,000
$12,900,000
Realised Earnings
$300,000
$840,000
Proportion of earnings over $3m
33.33%
76.74%
Proportion of earnings over $10m
0%
22.48%
Division 296 Tax Calculation
$100,000 x 15%
$644,651 x 15% + $188,837 x 10%
Division 296 Tax
$15,000
$115,581.40
Remember, that's in addition to existing Super fund taxation. Keep in mind this is just an example with simple conditions. The implications of Division 296 could look significantly different based on your specific financial circumstances.
Try our Division 296 Tax Calculator
For a more precise look at what these changes mean for you, check out our Division 296 Tax calculator. This will show how much you stand to pay when these changes come into effect.
Possible responses to Division 296
There's no one-size-fits-all approach to dealing with changes like Division 296.
In addition to withdrawing funds, some other changes you might make to your financial strategy are:
Alternative investment options
Depending on your situation, it may be worth considering different investment options. This can include investing in your personal name, using family trusts or company structures (which can have a 25% tax rate for eligible entities).
Gifting to adult children
If your goal is to maximise your children's inheritance, gifting money to your adult children can be a more tax-effective option in light of Division 296.
Investing in a Principal Place of Residence (PPOR)
Another option that might be better for your financial situation is investing in your PPOR through measures like renovations.
Again, you shouldn't make any decisions in response to Division 296 without carefully considering all the implications and seeking advice.
Division 296 Tax Update
What has changed?
On Friday 19 December 2025, Treasurer Jim Chalmers announced updated Draft Legislation to the Government’s $3 million superannuation tax reform under Division 296, which is also referred to as the “Better Targeted Superannuation Concessions tax” or BTSC tax.
Unrealised gains
The proposed policy will no longer tax unrealised gains. Instead, it will work on a realised earnings basis and will be applied to dividends, interest, rent and realised gains. These earnings are calculated by the fund and attributed to members, and the Division 296 tax is then applied to the portion of realised earnings that relates to balances above the relevant thresholds.
Tiered tax rates introduced
The proposed policy will now feature a tiered tax rate based on your Total Superannuation Balance (TSB):
- Super balances between $3 million and $10 million: An additional 15% tax on earnings
- Super balances above $10 million: An additional 25% tax on earnings
Indexation
Previously, there was no plan outlined to address the issues of inflation and bracket creep. In the proposed policy, both the $3 million and $10 million thresholds will be indexed annually (in $150,000 and $500,000 increments, respectively), maintaining relativity with the Transfer Balance Cap.
Start Date
Commencement has been delayed to 1 July 2026, allowing time for further consultation and system readiness.
Get the advice you need to manage superannuation changes
Tax legislation and the strategies required to make tax-effective financial decisions continually change.
Our dedicated team of private wealth advisers have the knowledge and experience needed to adapt to new legislation like Division 296. We have quality in-house research teams and tax specialists at hand, allowing us to forge partnerships to help grow our clients’ wealth.
Find out why we're trusted to oversee more than $73.4 billion (as at 31 December 2025) in Funds under Advice for our clients. Start a conversation with us today and take control of your personal wealth.
Division 296 Frequently Asked Questions
Basics & Definitions
What are realised earnings?
Realised earnings are income received by your fund, such as dividends, interest, rent, and realised capital gains. These earnings are calculated by the fund and attributed to members, and the Division 296 tax is then applied to the portion of realised earnings that relates to balances above the relevant thresholds.
What counts as my Total Super Balance (TSB)?
Your Total Super Balance (TSB) includes the value of all your superannuation interests across your superannuation funds, including any SMSF member balance. For most superannuation rules, the TSB also includes certain adjustments such as Limited Recourse Borrowing Arrangement (LRBA) amounts.
However, for Division 296 purposes, the exposure draft states that LRBA amounts will be disregarded, so these borrowings will not be added back when determining whether you exceed the Division 296 thresholds or when calculating your Division 296 tax liability. This ensures that a member’s balance is not artificially increased for the purposes of the new tax.
Application & Scope
Who does Division 296 affect?
Division 296 applies to individuals whose Total Superannuation Balance (TSB) exceeds $3 million at the end of the financial year. This includes balances held in self-managed super funds (SMSFs) and public funds. From 1 July 2027, Division 296 will apply if an individual’s TSB as of 1 July, or the TSB as of 30 June exceeds the $3 million threshold.
You should seek professional financial advice before making decisions.
Are some people excluded from Division 296 tax?
Yes. For example, child pension recipients andpeople who have received structured settlement contributions won’t be taxedunder Division 296. Some special funds are also treated differently.
Does Division 296 apply to self-managed super funds?
Yes, Division 296 tax liabilities apply to SMSFs. While there are a few differences to keep in mind, Division 296 tax liabilities are broadly similar for SMSFs and public fund members.
What about defined benefit pensions?
Earnings will be calculated using the change in the defined benefit balance over the financial year, with adjustments for contributions, withdrawals and a prescribed factor. Where benefits are not yet payable from a defined benefit interest, Division 296 tax liabilities can be deferred into a Division 296 debt account and become payable when the first benefit is paid.
Timing & Payment
Should I take money out of my Super if my balance is over $3 million or $10 million threshold?
Not necessarily. In the first financial year (2026–27), Division 296 is based on your 30 June 2027 TSB, so withdrawing before year end may reduce your balance for that initial assessment.
From 2027–28 onwards, the higher of your opening and closing TSB will be used when determining whether Division 296 applies. This means withdrawing later in the year generally won’t prevent the tax from applying if your 1 July balance was already above the threshold.
Withdrawals may also create other tax consequences, such as capital gains tax, so it’s important to get professional financial advice before making decisions.
When do I need to make my first tax payment?
The tax will first be due in the 2027/28 financial year.
The ATO will issue a Division 296 assessment when it has sufficient information to assess an individual’s liability. This assessment is generally due 84 days after the notice is issued. The tax can be paid personally, or an ATO release authority can be used within 60 days so a super fund releases money to the ATO.
Can investments be grandfathered under Division 296?
The election to grandfather assets will be allowed for small Super funds, such as SMSFs, however importantly, super funds must elect to apply the option by the due date for lodging the tax return for the 2026-27 Financial Year. This option is not available for public Super fund accounts such as industry funds.
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Important Information
This webpage provides general information only and does not constitute financial, investment, or tax advice, and should not be relied on to make financial, investment or taxation decisions. The information is based on proposed legislation and current publicly available information as of October 2025, which may be subject to change. Individuals should seek professional advice tailored to their specific circumstances before making any decisions.
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