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Division 296 Super Tax: what’s changed and what it means

6 February 2026
by Hanh Oh
4-minute read

The federal government has significantly revised the proposed Division 296 superannuation tax, removing some of its most controversial elements while introducing a more progressive tax structure for very large balances. While the tax is yet to be legislated, the changes clarify how high super balances will be treated from 1 July 2026, with the first tax payable in 2027–28.

Key design changes

Two of the most criticised features of the original proposal have been removed:

Unrealised capital gains will not be taxed. Tax will apply only when gains are realised.
Thresholds will now be indexed, rising over time in line with CPI via the transfer balance cap.

In addition, capital gains will be measured from 1 July 2026 onward, rather than being backdated, and the existing one-third CGT discount will apply to balances above $3 million.

New progressive tax structure

The revised framework introduces tiered tax rates based on total super balances (including both accumulation and pension phases):

Under $3 million: No Division 296 tax applies. Earnings remain taxed at the standard 15% in accumulation.
$3 million to $10 million: An additional 15% tax applies to the proportion of earnings attributable to the balance above $3 million, bringing the effective rate on that portion to 30%.
Above $10 million: A further 10% tax applies to the proportion of earnings above $10 million, lifting the effective rate on that slice to 40%.

Importantly, these higher rates apply proportionally, not to all earnings.

Why the tax is less punitive than it sounds

A common misconception is that exceeding $3 million automatically exposes all super earnings to higher tax. In reality, only the portion of earnings linked to the balance above the threshold is taxed at the higher rate.

For example, if a $3 million balance grows to $3.3 million, only around 9% of earnings are subject to the extra 15% tax. The resulting tax bill is relatively modest, reinforcing why super remains a tax-effective investment vehicle for most people.

What high-balance members should consider

Financial advisers caution against making immediate changes, as the legislation is not yet final. However, planning is sensible:

Balances near $3 million: Couples may consider equalising super balances through contribution splitting or withdrawal and recontribution strategies (subject to caps).
$3–$10 million: Some may consider withdrawing funds to invest personally, contribute to a partner’s super, or gift to family—though this depends on individual tax rates and circumstances.
Above $10 million: The higher effective tax rate may justify withdrawing excess amounts and investing outside super, such as in personal assets, companies, or trusts. Even so, super may still compare favourably with top marginal personal tax rates.

Impact on confidence in super

While the proposal has shaken confidence for some savers, advisers broadly agree that superannuation remains one of the most tax-effective long-term investment structures. Personal and trust tax rules also change over time, and for most Australians, the revised Division 296 framework affects only a small proportion of total savings.

Bottom line

The revised Division 296 tax is more targeted, more progressive, and less punitive than originally proposed. By removing unrealised gains, indexing thresholds, and applying tax proportionally, the government has preserved super’s role as a core retirement vehicle—while increasing tax on very large balances. For most people, super is still the best place to grow retirement wealth, even under the new rules.

About the author

Hanh On

Partner | SMSF Management

Hanh has a background in accounting, financial planning and SMSFs allowing him to give truly all-encompassing advice. He established BG Private's dedicated SMSF division in 2004. He is a CPA, Registered Tax Agent and SMSF Specialist.