Proposed legislation now details how the new tax will work from 1 July 2026.

Division 296 – the so‑called “$3 million super tax” – has moved from a political talking point to near‑certain reality, with detailed legislation now on the table from 1 July 2026.  Once law, the first assessments will land after 30 June 2027, based on your 2026/27.

Key highlights:

In simple terms, Division 296 adds a new layer of tax on higher super balances – but only on a slice of earnings, and only above thresholds:

• Extra 15% tax on the proportion of an individual’s total super balance (TSB) between $3m and $10m.
• Extra 25% tax on the proportion of TSB above $10m.
• Earnings are calculated on a grossed-up basis, including franking credits, using a complex formula to attribute earnings to each member.

But there is some good news

For all the headlines, the final design is far more workable than the original proposal:

• The $3m and $10m thresholds are indexed, so bracket creep is less of an issue than under the original proposal.
• The tax is based on realised earnings, not changes in unrealised value (a major improvement on earlier proposals that taxed “paper gains”).
• For most years, thresholds are tested at both the beginning and end of the financial year, and the higher balance is used. (The first year has special transitional rules.)
• The tax is levied on the individual, who can choose to pay personally or have the amount released from super.
• Income that has effectively been tax free in retirement phase may now contribute to the calculation of this extra tax.
• Capital Gains accruing pre-1 July 2026 can be excluded from earnings.

What this means for planning

Division 296 is not a reason to panic – but it is a reason to plan.

There is scope to improve your starting position before 1 July 2026 and during the first transition year, including how assets are valued, how earnings are attributed between members, and whether any restructuring should happen before the new rules bite.

Some clients will sensibly decide to move part of their wealth outside super into family trusts or companies, but whether that is smart for you depends on your wider tax profile, asset mix and estate planning goals.

There will not be a one‑size‑fits‑all solution – the best strategy for a $4m diversified portfolio in pension phase will look very different to the best strategy for a $15m, property‑heavy SMSF still largely in accumulation.

Where to from here?

If your super balance is approaching, at or above the new thresholds, now is the ideal time to start modelling the impact and sense‑checking your structure.  We are working through client positions on an individual basis and can help you weigh up the trade‑offs before you make any big moves.

What else do we need to worry about?

For now, the existing CGT framework still applies outside of super, but clients should be aware that discount rates, main residence boundaries and small business concessions are all part of a live policy conversation that could translate into concrete reforms over the next few years.

Andrea McNamara

March 2026