Division 296 Tax: How the $3m superannuation tax changes affect you
Updated 14 October 2025
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 13 October 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 at 30 per cent, which is an additional 15%. It is also set to tax earnings attributable to balances over $10 million at 40 per cent, which is an additional 25%.
The thresholds will be indexed, will only apply to realised earnings, and will be implemented 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).
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 actually 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 fairly 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's changed
On Monday 13 October, Treasurer Jim Chalmers announced significant changes 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. Realised earnings will be calculated by the fund and attributed to members with balances above the threshold.
Tiered tax rates introduced
The proposed policy will now featured a tiered tax rate based on your Total Superannuation Balance (TSB):
- Super balances between $3 million and $10 million: Total tax rate of 30% tax on earnings
- Super balances above $10 million: Total tax rate of 40% 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
The changes to the policy mean that implementation has been delayed to 1 July 2026, allowing time for further consultation and system readiness. First notices of assessment are expected in the 2027–28 financial year.
What's still to be determined
- Calculation details: Treasury will consult on the precise method for calculating and attributing realised earnings to in-scope members, including the treatment of capital gains and CGT discount. They have not provided any transitional provisions to address how capital gains accrued before the start date will be treated if realised after commencement.
- Negative earnings and capital losses: This is yet to be confirmed. Treasury will consult on these details as part of the ongoing design process.
- Defined benefit interests: Further consultation will determine valuation and timing of tax for these interests.
- Reporting and payment mechanisms: Details on how individuals and funds will report earnings and pay the tax are yet to be finalised.
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 $71.1 billion (as at 30 June 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
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. If you take money out before the end of the financial year and bring your balance below the threshold, the tax won’t apply. However, depending on your situation, you may subject to capital gains tax within the fund and taxed on withdrawing funds from your superannuation.
You should seek professional financial advice before making decisions.
What about defined benefit pensions?
If you have a defined benefit pension, its value, including any associated pension payments, may be counted towards your Super balance. Special rules apply, and any tax might be deferred in some cases. Further consultation will determine valuation and timing of tax for these interests.
What are realised earnings?
Realised earnings are income received by your fund, such as dividends, interest, rent, and realised capital gains. The government is consulting on the precise calculation method.
Is Division 296 in law yet?
No, 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.
Will Division 296 tax unrealised gains?
No, 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.
What is the significance of recent Division 296 tax changes?
The recent changes to the proposed Division 296 tax addressed some of the more contentious issues with the previous policy, including the taxing of unrealised gains and indexation
Liability & Timing
Should I take money out of my Super if my balance is over $3 million?
Not necessarily. Withdrawing could trigger other taxes, like capital gains tax (CGT), and may affect your financial situation. 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 after the ATO reviews superannuation realised income from the 2026/27 financial year. Once they have sufficient information to make an assessment, an assessment notice will be issued. If you are in a self-managed super fund (SMSF), the tax assessment will happen after your fund submits its return.
What if my Super balance goes down?
If your Super fund has negative growth (loses value), the loss can generally be carried forward and offset future earnings. This can help to reduce future tax payments.
Will my current Super balance be grandfathered for Division 296?
There has been no information provided by the Treasury or the Federal Government on when current superannuation balances will be grandfathered under the proposed policy. Treasury has said they will consult on the precise method for calculating and attributing realised earnings to in-scope members, including treatment of capital gains and CGT discount.
What counts as my Total Super Balance (TSB)?
All funds in your superannuation, pension and SMSF individual member accounts count at 30 June toward your Total Super Balance. Some outstanding loan amounts linked to your Super, such as a Limited Recourse Borrowing Arrangement (LRBA) might not be included. Further consultation will determine valuation and timing of tax for these interests.
Application & Scope
Are some people excluded from Division 296 tax?
Yes. For example, child pension recipients and people who have received structured settlement contributions won’t be taxed under 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. Some differences may apply for SMSFs compared to public fund members due to variations in how the funds are set up. For example, public fund members may request money from their fund to cover this tax. SMSFs are entirely responsible for their own tax obligations. While there are a few differences to keep in mind, Division 296 tax liabilities are broadly similar for SMSFs and public fund members.
Will the $3 million and $10 million thresholds increase over time?
Yes, both the $3 million and $10 million Super balance thresholds will be indexed by the Government. Indexation will be linked to the consumer price index with the $3 million threshold increasing in $150,000 increments while the $10 million threshold will increase in $500,000 increments.
Tax Calculation &
Payment Options
How do I pay this tax?
The Australian Taxation Office (ATO) will send you an official assessment once it receives your tax return and contribution information from your Super fund. You can pay the tax personally or request money from your Super fund to cover it.
What counts as my Super balance?
All funds in your superannuation account and SMSF individual member balance count toward your Super balance. Some outstanding loan amounts linked to your Super, such as a Limited Recourse Borrowing Arrangement (LRBA) might not be included. Further consultation will determine valuation and timing of tax for these interests.
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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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