Division 296: The New $3M Super TaxWhat high-balance members should do now that the $3 million super tax is law

After three years of debate, the so-called “$3 million super tax” is finally law. The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 passed Parliament on 10 March 2026 and received Royal Assent on 13 March. Division 296 commences on 1 July 2026 — and the version that made it onto the statute books is materially different, and considerably fairer, than the one first proposed in 2023.

If your total superannuation balance is approaching or above $3 million, this is the most significant change to the super rules in years. The good news: the most contentious feature of the original design has been removed. The planning task, however, is real — and the next twelve months matter.

What Division 296 Actually Is

Division 296 applies an additional 15% tax on the portion of your superannuation earnings that is attributable to a total super balance (TSB) above $3 million. Because your fund already pays up to 15% on earnings in the accumulation phase, the effective rate on that slice rises to around 30%. It is an extra layer of tax on a portion of earnings — not a tax on your whole balance, and not a wealth tax on the $3 million itself.

Crucially, the threshold is measured per individual. A couple can hold up to $6 million across two super accounts before either member is caught — which makes balance equalisation between spouses one of the central planning levers.

How the Tax Is Calculated

Division 296 applies proportionally — only to the share of your earnings that sits above the threshold. A worked example makes it clear.

Suppose your total super balance is $4 million and your fund earns $200,000 over the year. The amount above the $3 million threshold is $1 million — which is 25% of your $4 million balance. Division 296 therefore applies to 25% of your earnings, or $50,000. The extra 15% on that slice is $7,500. The remaining $150,000 of earnings is taxed as normal at up to 15%. So your additional cost under Division 296 is $7,500 — not a tax on the full $200,000, and certainly not on the $4 million.

The Two Tiers: $3 Million and $10 Million

The final law introduced a second tier that did not exist in the original proposal. Earnings attributable to the balance between $3 million and $10 million attract the extra 15% (an effective rate of roughly 30%). Earnings attributable to the portion above $10 million attract an extra 25% — an effective rate of around 40%. Both thresholds are now indexed to inflation: the $3 million threshold lifts in $150,000 increments and the $10 million threshold in $500,000 increments, which should ease bracket creep over time.

What Changed From the Original Proposal

Three changes turned a widely-criticised design into something far more workable. First, the tax on unrealised gains is gone — funds will not be taxed on movements in the paper value of assets they still hold. Second, the thresholds are now indexed, rather than frozen at $3 million indefinitely. Third, the second $10 million tier concentrates the heaviest impact on the very largest balances. Together these changes address the liquidity problem that worried SMSF members with lumpy assets such as property or private holdings.

Who Needs to Pay Attention

The first measurement date for your total super balance is 30 June 2027, with the first assessments expected in the 2027–28 financial year. That sounds distant, but the planning window is the period before the rules bite. You should be paying attention if your super is already above $3 million, if it is trending toward $3 million within a few years, or if you are a couple with combined super above $3 million held unevenly between two accounts.

What to Consider Before and After 1 July 2026

Everyone’s position is different, and the right response depends entirely on your circumstances. Broadly, these are the areas worth reviewing with your adviser:

• Know your number. Check your total super balance through myGov, and project it forward. The threshold test is on TSB, not on any single account.
• Understand the realised-earnings basis. Because only realised gains count, the timing of large transactions — selling a property inside an SMSF, for example — can concentrate earnings into a single year and spike a Division 296 liability. Sequencing matters.
• Model the couple strategy. Two $3 million thresholds mean up to $6 million can sit outside the new tax. Contribution splitting, spouse contributions and re-contribution strategies can gradually move balance to the lower-balance spouse.
• Don’t reflexively pull money out. For most members, super remains the most tax-effective structure available even after Division 296. Whether the marginal dollar above $3 million belongs in super, a family trust, a company or personal names is a question to model — not to assume.
• Coordinate with your estate plan. Binding death benefit nominations, reversionary pensions and the tax-free/taxable component split all interact with how and when balances are drawn down.
• Review annually. With both thresholds now indexed, your position relative to the cap will shift each year. This is not a set-and-forget exercise.

The Bottom Line

Division 296 is law, it starts on 1 July 2026, and it is a meaningfully better outcome than the version first floated three years ago. For high-balance members it is not a reason to panic — but it is a clear signal to plan. The cost-base reset at 30 June 2026, the per-person threshold, and the realised-earnings basis all create genuine planning opportunities for those who act deliberately. The members who fare best will be the ones who understood their numbers early and made considered, unhurried decisions — not the ones who reacted to a headline.