Division 296 tax: overview and implications for clients
13 Jul 2026
Where things currently stand
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Division 296 is now law, with supporting regulations providing further clarity on how the measure will operate. This includes rules for valuing different types of super interests and attributing earnings across them.
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The new tax applies from 1 July 2026, with first assessments expected to be issued in the 2027–28 income year.
Key mechanics
Tax on accumulation accounts
Earnings within super are generally taxed at 15%, up to a balance of $3M. Division 296 introduces higher, tiered tax rates on earnings attributable to the portion of a client’s TSB above $3 million for 2026- 27 financial year.
| Balance range | Additional tax on earnings | Total tax rate on those earnings |
|---|---|---|
| Under $3M | 0% | 15% |
| $3M to $10M | +15% | 30% |
| Above $10M | +15%, plus a further 10% | 40% |
Tax on retirement accounts (allocated pensions)
| Balance range | Additional tax on earnings | Total tax rate on those earnings |
|---|---|---|
| Under $3M | 0% | 0% |
| $3M to $10M | +15% | 15% |
| Above $10M | +15%, plus a further 10% | 25% |
These additional rates apply only to earnings linked to the portion of the balance above each threshold, not the entire superannuation balance.
Earnings for Division 296 purposes are based on a defined framework that reflects realised gains and changes in value over the year, taking into account contributions, withdrawals and other movements.
The ATO will assess Division 296 liabilities at the individual level. Clients will have the option to pay the liability personally or elect to release funds from super.
Client impact
Clients may be affected if:
- their Total Superannuation Balance exceeds $3 million across all super interests
- they have earnings captured under the Division 296 calculation methodology
Most super interests are included in the TSB calculation, including accumulation accounts, retirement phase interests and defined benefit interests. Foreign fund interests are excluded from the TSB.
Practical application considerations
The application of Division 296 will vary depending on a client’s structure and circumstances:
- For clients with multiple super interests, earnings will be attributed across those interests under a single framework
- Year to year changes in balance, including contributions, withdrawals and market movements, will influence the calculated earnings outcome
- Negative earnings outcomes may arise where there is a decline in the value of super interests
Defined benefit interests
Defined benefit interests are assessed using prescribed valuation methods and actuarial principles rather than a single formula, reflecting the structure of these arrangements.
In practice:
- Defined benefit interests are assigned a value using prescribed valuation methods for TSB purposes
- Earnings are attributed based on changes in the value of the interest over time, rather than investment returns on an account balance
- Earnings may be recognised even where there is no underlying account balance
- Defined benefit interests are aggregated with other super interests when assessing the $3 million threshold
- Specific rules apply to certain income streams, including military invalidity pensions
This approach is intended to align the treatment of defined benefit interests with accumulation interests within the Division 296 framework.
Considerations for advisers
Division 296 introduces new factors that may be relevant when reviewing client strategies:
- clients nearing or exceeding the $3 million threshold
- SMSFs with illiquid assets or lumpy realisation events
- clients with limited liquidity outside super
- interactions with estate planning and intergenerational outcomes
- clients with significant defined benefit entitlements
Payment of the tax
Division 296 is a personal tax liability assessed by the ATO. While not levied on the fund directly, clients may elect to pay the liability from their superannuation balance. Defined benefit members may defer Division 296 tax into a debt account.