The long-awaited Division 296 tax has now passed both houses of Parliament and received Royal assent, becoming law under the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026.

While media coverage has focused on the so-called ‘$3m super tax’, the rules are more nuanced in practice. Division 296 affects certain high-balance super accounts, and the way the tax is calculated depends on several factors. This alert explains who is impacted, how the tax operates, and the key practical issues that are emerging.

Who is affected by Division 296

Division 296 applies to individuals whose total superannuation balance (TSB) exceeds $3m.

There are two thresholds:

$3m to $10m

• An additional 15 percent tax applies to the proportion of super earnings attributable to balances above $3m.

Over $10m

• A further 10 percent tax applies, resulting in a total additional tax of 25 percent on the relevant portion of earnings.

Both thresholds will be indexed to CPI, using incremental increases of $150,000 for the $3m threshold and $500,000 for the $10m threshold.

If your total super balance is below $3m, Division 296 will not apply. Division 296 will only apply if your TSB exceeds the relevant threshold.

What is actually being taxed

Division 296 does not tax:

• your total super balance
• your contributions
• withdrawals from super.

Instead, it applies to superannuation earnings, based on the proportion of your balance that exceeds the relevant threshold.

Super funds will continue to pay their usual tax on earnings, generally 15 percent. Division 296 operates at the individual level and effectively increases the tax rate on super earnings attributable to very large balances.

In broad terms, this means:

• earnings on balances above $3m may be taxed at up to 30 percent in total
• earnings on balances above $10m may be taxed at up to 40 percent in total.

An example of how Division 296 applies

Facts

• Total superannuation balance at 30 June 2027: $5m
• Superannuation earnings for the year: $400,000
• Member is in accumulation phase
• Balance exceeds $3m but is below $10m

Step 1: Determine the proportion of the balance above $3m

• Amount above $3m: $2m (TSB $5m – $3m threshold)
• Proportion above threshold: $2m ÷ $5m = 40 percent

Step 2: Apply this proportion to super earnings

• Earnings subject to Division 296: $400,000 × 40 percent = $160,000

Step 3: Apply the additional Division 296 tax

• Division 296 tax rate: 15 percent (between $3m and $10m only)
• Division 296 tax payable: $160,000 × 15 percent = $24,000

Total tax outcome

• The super fund continues to pay its normal tax on earnings
• The individual receives a separate Division 296 assessment of $24,000
• The individual can pay this personally or elect to release funds from super

This example illustrates that Division 296 does not apply to all earnings, only the portion attributable to the balance above $3m.

How earnings are calculated

Following industry feedback, the final legislation does not tax unrealised capital gains.

Instead, earnings are calculated using a realised earnings approach. Super funds will report realised, attributable earnings for affected members to the Australian Taxation Office (ATO) using approved methodologies.

Key points:

• Unrealised gains are excluded.
• Contributions are adjusted for.
• Special rules apply to pension phase income and defined benefit interests.

This change significantly reduces volatility risk compared to the original proposal.

How the balance threshold is tested

From the 2026–27 financial year onwards, an individual’s TSB will be measured at:

• the start of the financial year
• the end of the financial year.

The higher of these two balances will be used to determine whether Division 296 applies.

A transitional rule applies in the first year, where only the closing balance at 30 June 2027 is tested. This may create limited planning opportunities for individuals who have already met a condition of release.

Paying the Division 296 tax

The ATO issues the assessment to the individual affected.

Within 84 days, the individual can either:

• pay the tax from personal funds
• elect to release money from super, similar to the process under Division 293.

Key practical issues to be aware of

We are already seeing a number of recurring themes for impacted clients:

• Asset valuations matter more than ever, particularly for self-managed superannuation funds (SMSFs) holding property or unlisted investments.
• Capital gains tax (CGT) election will be available for SMSF’s assets at 30 June 2026 for Division 296 purposes only. The election is optional, must be applied to all CGT assets held directly by the fund, is irrevocable, and must be made by the due date of the fund’s 2026-27 tax return.
• Liquidity planning is critical, especially where super assets are illiquid.
• Spouse balance disparities can increase exposure over time.
• Defined benefit members will be subject to modified rules, with tax typically payable on retirement rather than annually.

What you should do now

If your total super balance is approaching or already exceeds $3m, consider:

• reviewing current and projected super balances
• ensuring valuation processes are robust
• modelling future earnings and potential Division 296 exposure
• revisiting contribution, pension, and estate planning strategies.

How SW can help

Navigating the new Division 296 tax can be complex, particularly for individuals with high super balances or SMSFs holding diverse assets. At SW, we have extensive experience in superannuation strategy, tax planning, and compliance, and we can help you understand your potential exposure, model future earnings, and develop practical strategies to manage the impact of this legislation. Our team can assist with valuation processes, liquidity planning, CGT elections, and contribution or pension planning to ensure your super arrangements remain efficient and aligned with your long-term goals. By working with SW, you gain tailored advice and actionable solutions to stay ahead of Division 296 requirements and make informed decisions for your superannuation and estate planning.

This publication is issued by SW Accountants & Advisors Pty Limited ABN 78 625 921 390 (SW) exclusively for the general information of clients and staff of SW and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name SW within Australia. The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. SW, and related entity, or any of its offices, employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in the publication.

Contributor

Dominic Lam

The post Division 296 tax has passed parliament and what it means for large super balances appeared first on SW Accountants & Advisors.

We summarise the main changes below and explain what they may mean for you.

Contribution caps from 1 July 2026

Concessional (before-tax) contributions

The annual concessional contributions cap will increase to $32,500. This cap includes employer Super Guarantee contributions, salary sacrifice contributions, and personal contributions for which a tax deduction is claimed.

If your total super balance was less than $500,000 at 30 June 2026, you may also be able to access unused concessional cap amounts from the previous five financial years under the carry-forward rules.

Non concessional (after-tax) contributions

The standard annual non-concessional contributions cap will increase to $130,000. Eligibility to make non-concessional contributions continues to depend on your total super balance at 30 June of the previous financial year.

Bring-forward rule thresholds

If you are under age 75, the bring-forward rule may allow you to contribute up to three years’ worth of non-concessional contributions in a single year. From 1 July 2026, the maximum amount you can contribute under the bring-forward rule, and the length of the bring-forward period, will depend on your total super balance at 30 June 2026.

The thresholds will be as below:

It is important to note that if you have already triggered a bring-forward period in an earlier financial year, you will remain subject to the previously applicable caps until that bring-forward period ends.

Transfer balance cap and flow-on impacts

From 1 July 2026, the general transfer balance cap will increase from $2.0m to $2.1m. This cap limits the amount that can be transferred into the tax-free retirement phase.

The increase in the transfer balance cap will also flow through to a number of other thresholds, including total super balance limits that determine eligibility for non-concessional contributions and bring-forward arrangements.

If you have already commenced a retirement phase income stream, any increase to your personal transfer balance cap will be proportionate and will depend on how much of your cap you have previously used.

What you should be thinking about now

With these increases approaching, it may be timely to:

• review your contribution strategy for the 2026-27 financial year
• consider whether delaying non-concessional contributions until after 1 July 2026 could allow larger amounts to be contributed
• check whether triggering a bring-forward arrangement before 30 June 2026 could limit your flexibility once the higher caps apply
• review your total super balance ahead of 30 June 2026 to understand future contribution eligibility.

As always, contribution strategies need to be considered in the context of your broader financial position, cash flow, and tax circumstances.

How SW can help

At SW, we can work with you to assess your current superannuation position and develop a tailored contribution strategy aligned with your broader financial goals. We can assist in reviewing your eligibility for concessional and non-concessional contributions, advising on the optimal timing of contributions, including bring-forward strategies, and assessing your total super balance and transfer balance cap position. We also ensure your approach is tax-effective and aligned with your cash flow and investment objectives.

If you would like to discuss how these changes may apply to you, please get in touch with your adviser.

Contributor

Dominic Lam

The post Superannuation contribution caps to increase from 1 July 2026 appeared first on SW Accountants & Advisors.