The Government’s proposed Division 296 superannuation changes (often called the “$3m super tax”) have now passed the Senate and are scheduled to commence from 1 July 2026, with the first impacted financial year being FY27.
For most Australians, nothing changes. But for those with larger super balances, this is an important development.
What’s changing?
Division 296 introduces an additional tax on superannuation earnings linked to balances above certain thresholds:
- For total super balances above $3 million, earnings attributable to the amount over this threshold are subject to an additional 15% tax. When added to the standard super tax rate of 15%, these earnings would be taxed at 30%.
- For balances above $10 million, earnings attributable to the amount over this threshold are subject to a further 10% tax. When added to the standard super tax rate of 15% and the 15% tax above the $3m threshold, these earnings would be taxed at 40%.
Important things to note
- The tax is assessed to the individual, not the fund, although it will generally be possible to pay it from super (similar to Div 293).
- The final legislation does not include taxation of unrealised gains, which was a point that stoked controversy in the original draft of the legislation.
- The final legislation does include indexation of thresholds, meaning they will increase over time.
Who is impacted by this?
- The tax is assessed to the individual, not the fund, although it will generally be possible to pay it from super (similar to Div 293).
- The final legislation does not include taxation of unrealised gains, which was a point that stoked controversy in the original draft of the legislation.
- The final legislation does include indexation of thresholds, meaning they will increase over time.
Should you withdraw money to get under $3m?
This is the question many people are asking, and the answer is: not necessarily.
While withdrawing funds may reduce exposure to Division 296, money invested outside super is often taxed at higher marginal rates, which can leave you worse off overall.
A simple example:
- You can assume
- Total super balance: $3.5m (amount above the $3m threshold: $0.5m)
- Annual income: 7%
- Earnings on the $0.5m above the threshold: $35,000 p.a.
If kept in super, earnings on that portion of income may face a combined tax rate of 30% (15% standard super tax rate + 15% Div 296 tax rate), which would be $10,500 of tax.
If the $1.0m above the threshold is withdrawn and invested personally, the same $35,000 of earnings taxed at common marginal rates would leave you with the below tax payable amounts:
- $11,200 tax if your marginal rate is 32% (inc. 2% Medicare Levy)
- $13,650 tax if your marginal rate is 39% (inc. 2% Medicare Levy)
- $16,450 tax if your marginal rate is 47% (inc. 2% Medicare Levy)
In other words, even with Division 296 applying, super can still be the more tax‑effective environment, particularly for higher‑income earners.
The takeaway
Division 296 is a meaningful change, but it doesn’t necessarily mean getting your money out of super is the best option. The right strategy depends on:
- Your marginal tax rate outside super
- Whether your balance is in accumulation or pension phase
- Asset mix, liquidity, and timing
- Your longer‑term retirement and estate planning objectives
If you are close to or above $3m in super, now is a good time to model the numbers properly rather than making reactive decisions.
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