Division 296 tax is an additional 15% tax on the notional earnings of super balances above $3 million, effective from 1 July 2025. It was introduced by the Treasury Laws Amendment (Better Targeted Super and Other Measures) Act 2023 and targets very high super balances — estimated to affect fewer than 80,000 Australians.
For those affected, the effective tax rate on earnings attributed to the over-$3M portion of their super rises from 15% (in accumulation) or 0% (in pension phase) to effectively 30% and 15% respectively.
Key Facts at a Glance
| Feature | Detail |
|---|---|
| Effective date | 1 July 2025 |
| Tax rate | Additional 15% (on earnings attributed to balance over $3M) |
| Threshold | $3 million total super balance (TSB) |
| Indexed? | No — the $3M threshold is not indexed to inflation |
| Earnings basis | Notional earnings (formula — includes unrealised capital gains) |
| Payment | Assessed by ATO, payable personally or from super fund |
| Legislative source | Treasury Laws Amendment (Better Targeted Super) Act |
Who Is Affected?
Division 296 tax applies to individuals (not super funds themselves) whose total super balance (TSB) exceeds $3 million at 30 June.
TSB includes:
- All accumulation account balances
- Account-based pension account balances
- Defined benefit fund interests (valued using a formula)
- SMSF member interests
TSB does not include:
- Money held outside super (bank accounts, investment properties, shares)
If your TSB across all funds is under $3 million at 30 June of each financial year, Division 296 does not apply to you — regardless of your income.
How the Tax Is Calculated
Step 1 — Calculate Attributable Earnings
Division 296 does not tax actual fund earnings. Instead, it calculates notional earnings (called “attributable earnings”) using a formula:
Attributable earnings = Closing TSB − Opening TSB + Withdrawals − Contributions
This formula captures the change in total super balance over the year, adjusted for money going in and out. Critically, it includes unrealised capital gains — increases in the value of assets held by the fund that have not yet been sold.
Example:
- Opening TSB: $3.5M
- Closing TSB: $3.8M
- Withdrawals: $200,000 (pension drawdown)
- Contributions: $30,000 (employer SG)
- Attributable earnings = $3.8M − $3.5M + $200,000 − $30,000 = $470,000
Step 2 — Proportion Attributable to Over-$3M Balance
Only the portion of earnings attributed to the balance above $3M is subject to Division 296 tax:
Proportion = (TSB − $3M) ÷ TSB
Using the example:
- Proportion = ($3.8M − $3M) ÷ $3.8M = $800,000 ÷ $3.8M = 21.05%
Step 3 — Calculate Division 296 Tax
Division 296 tax = Attributable earnings × Proportion × 15%
Using the example:
- $470,000 × 21.05% × 15% = $470,000 × 0.2105 × 0.15 = $14,840
The Unrealised Gains Controversy
The inclusion of unrealised capital gains in the attributable earnings calculation has been the most controversial aspect of Division 296.
The issue:
- If a super fund holds illiquid assets (direct property, unlisted shares, business real property in an SMSF) that increase in value, the formula counts that increase as “earnings” — even though no money has been received and no asset has been sold
- This means tax is payable on paper profits — potentially creating cash flow problems when the assets are illiquid
- For SMSFs with concentrated property holdings, this can require selling assets or borrowing to pay the tax
Government’s position: The design is intentional — notional earnings are used for simplicity and consistency across all fund types. The government contends that assets in super are ultimately for retirement income and the tax should apply broadly.
Refund if earnings are negative: If the attributable earnings formula produces a negative result (i.e. the TSB fell — e.g. a bad investment year), Division 296 tax is not payable and excess negative amounts can be carried forward to offset future positive earnings. This is a partial protection — there is no refund of prior-year Division 296 tax.
Payment of Division 296 Tax
Division 296 tax is assessed by the ATO and is separate from the super fund’s own tax. The individual (not the fund) receives the assessment.
Payment options:
- Pay personally from your own funds (outside super)
- Release the amount from your super fund — the ATO issues a release authority, and the fund pays the tax directly
Most people with balances over $3M will likely release funds from super to pay the tax, as the tax is on earnings that may be inside the fund. This is a formal process similar to excess contributions tax release.
Impact on Account-Based Pensions
For balances in the pension phase (account-based pension, tax-free earnings in pension phase), Division 296 imposes a new effective tax rate:
- Earnings that would have been at 0% (in pension phase) are now at 15% for the attributed portion over $3M
- Earnings in accumulation phase go from 15% to 30% for the over-$3M portion
The Threshold Is Not Indexed
A significant long-term concern is that the $3 million threshold is not indexed to CPI or wage growth. Over time, as super balances grow with contributions and investment returns, more people will be swept into the Division 296 regime — including some who today have far less than $3 million.
For comparison: the transfer balance cap ($2.0M) and contribution caps ($30,000 CC, $120,000 NCC) are indexed. Division 296’s fixed $3M threshold is an outlier.
Frequently Asked Questions
Does Division 296 affect my super fund’s tax rate, or my personal tax rate? Division 296 tax is levied on you personally — not on the fund. The ATO issues an assessment to you, and you pay from personal funds or by releasing from your super account via a release authority.
I have $3.5M in super — am I definitely affected? Yes, if your TSB exceeds $3M at 30 June, Division 296 applies. The tax is on the portion of notional earnings attributed to the balance above $3M — not on your entire super balance.
Can I avoid Division 296 by keeping my balance below $3M? If your TSB is below $3M at 30 June of a given year, Division 296 does not apply for that year. Some individuals may structure their affairs to keep TSB below $3M (e.g. by withdrawing lump sums, taking higher minimum drawdowns, or keeping some retirement savings outside super). The trade-off is that money outside super may be taxed at higher rates than even 30%. This is a decision that warrants professional advice.
My SMSF holds a property worth $1.5M — how will the unrealised gains tax work? If your SMSF’s property increases in value from $1.5M to $1.7M during the year, the $200,000 increase is included in the attributable earnings formula — even though no sale occurred and no cash was received. The Division 296 tax is assessed on the relevant proportion of this increase. If paying the tax requires cash that the SMSF doesn’t have, the fund may need to use other liquid assets or you may need to pay from personal funds outside super.
Is Division 296 retrospective? No — it applies from 1 July 2025 and does not tax earnings from prior financial years. However, the formula uses TSB at 30 June 2025 as the opening balance for the first year.
See also: Super Tax. For official guidance, see the ATO’s Division 296 tax information and Treasury’s Better Targeted Super. For advice tailored to your situation — particularly if you have an SMSF with illiquid assets — speak with a licensed financial adviser or SMSF specialist through MoneySmart.