Division 296 Explained: How the New Super Tax Could Affect High-Balance Australians From 2026

Introduction: Why Division 296 Has Triggered Widespread Concern

For decades, Australia’s superannuation system has been built around a simple promise: save consistently, benefit from concessional tax treatment, and retire with certainty.

That certainty is now being questioned by many high-balance Australians.

From July 2026, a proposed new tax—known as Division 296—is set to apply to individuals with superannuation balances above $3 million. While it affects a relatively small percentage of Australians today, its implications are far-reaching, particularly for professionals, business owners, SMSF trustees, and couples approaching retirement.

Advisers report unprecedented levels of concern, confusion, and rushed decision-making—often driven by headlines rather than a clear understanding of how the tax actually works.

This article provides a clear, practical explanation of Division 296, what it is designed to do, who it affects, what strategies are being discussed, and—critically—why poorly timed moves could do more harm than good.

Table of Contents

• What Is Division 296 and Why Is It Being Introduced?
• Who Will Be Affected by the New Super Tax?
• How Division 296 Is Expected to Work
• Why Timing Matters: When the Tax Actually Starts
• Common Reactions—and Why Many Are Risky
• Spouse Equalisation: What It Is and How It Works
• Pension Phase vs Accumulation Phase Under Division 296
• SMSFs, Valuations, and Increased Scrutiny
• How Division 296 Impacts Property and Lending Strategies
• What Australians Should Be Doing Now (and What to Avoid)
• Final Perspective: Strategy Beats Panic
• How Broker360 Fits Into the Conversation

What Is Division 296 and Why Is It Being Introduced?

Division 296 is a proposed additional tax on earnings attributable to superannuation balances above $3 million.

The rationale behind the measure is policy-driven:

• To reduce tax concessions for very high super balances
• To improve perceived equity within the super system
• To limit the use of super as a long-term wealth accumulation vehicle beyond retirement needs

Importantly, Division 296 is not a tax on total super balances. It is a tax on earnings, calculated proportionally on the amount above the $3 million threshold.

Administration and enforcement will sit with the Australian Taxation Office.

Who Will Be Affected by the New Super Tax?

On current projections, fewer than 10% of superannuation members are expected to be affected initially. However, that figure is misleading.

People most likely to be impacted include:

• SMSF trustees with long investment horizons
• Medical professionals, executives, and business owners
• Couples where one spouse holds a significantly higher balance
• Individuals benefiting from decades of compounding

Crucially, indexation and market growth mean many people who are unaffected today may cross the threshold later—without taking any additional action.

How Division 296 Is Expected to Work

While final legislation is still pending, the current proposal outlines the following framework:

• A 30% tax rate on earnings attributable to balances between $3 million and $10 million
• A 40% tax rate on earnings attributable to balances above $10 million
• Earnings include income and realised capital gains
• Capital gains receive a one-third discount
• Capital losses may be offset

The calculation is proportional—not flat—meaning only the portion above the threshold is affected.

This complexity is one reason advisers are seeing heightened anxiety.

Why Timing Matters: When the Tax Actually Starts

One of the most common mistakes is assuming Division 296 is already in force.

Key timing points:

• Expected commencement: 1 July 2026
• First assessment year: 2026–27
• Thresholds measured based on balances around 30 June 2027
• From subsequent years, the higher of opening or closing balance may apply

This means there is still time to plan, but also a real risk of making premature moves before final rules are confirmed.

Common Reactions—and Why Many Are Risky

High-balance individuals are responding in predictable ways:

• Withdrawing large sums early
• Restructuring investments aggressively
• Rushing into SMSFs or complex structures
• Attempting to “outrun” the tax

Many of these actions create new tax, compliance, and lending risks that outweigh the projected Division 296 impact.

A poorly executed response can:

• Trigger capital gains tax
• Reduce future borrowing capacity
• Complicate estate planning
• Invite audit scrutiny

Spouse Equalisation: What It Is and How It Works

One of the most discussed strategies is spouse equalisation—shifting super balances between partners.

At a high level, this can involve:

• Contribution splitting
• Strategic withdrawals
• Non-concessional contributions to a lower-balance spouse

Historically, this strategy has been used to maximise pension phase benefits and improve estate planning outcomes.

Under Division 296, it is being reconsidered as a way to keep individual balances under the $3 million threshold.

However, eligibility rules, contribution caps, and balance limits mean this strategy is not universally available and must be carefully staged.

Pension Phase vs Accumulation Phase Under Division 296

Understanding the distinction between phases is critical.

Accumulation Phase

• Earnings taxed at 15%
• Subject to Division 296 calculations

Pension Phase

• Up to $2 million can be transferred
• Earnings are tax-free
• Withdrawals are tax-free

Transitioning to pension phase at the right time can reduce exposure—but timing and balance caps matter.

Incorrect sequencing can permanently limit future options.

SMSFs, Valuations, and Increased Scrutiny

Division 296 has placed a renewed focus on asset valuation, particularly in SMSFs.

Why?

• Tax calculations rely on accurate market values
• Property and unlisted assets are harder to value
• Auditors are under pressure to increase scrutiny

SMSFs with related-party assets, complex structures, or informal valuation practices are likely to face greater compliance pressure going forward.

How Division 296 Impacts Property and Lending Strategies

Division 296 does not exist in isolation.

For clients using SMSFs to hold property or leverage through limited recourse borrowing arrangements (LRBAs), the interaction between tax, valuation, and lending becomes critical.

Lenders assess:

• Stability of structure
• Compliance history
• Long-term viability

Aggressive restructuring to avoid tax can reduce lender confidence, delay approvals, and limit refinancing options.

What Australians Should Be Doing Now (and What to Avoid)

What Makes Sense Now

• Education, not execution
• Scenario modelling
• Reviewing balance trajectories
• Ensuring documentation and valuations are clean

What to Avoid

• Panic withdrawals
• Locking in irreversible strategies
• Acting before legislation is final
• Treating Division 296 in isolation

The best strategies remain measured, documented, and adaptable.

Final Perspective: Strategy Beats Panic

Division 296 represents a meaningful change—but not an emergency.

Those who benefit most will be informed early, structurally conservative, and advised holistically.

The goal is not to eliminate tax at all costs, but to optimise outcomes across tax, retirement, property, and borrowing.

How Broker360 Fits Into the Conversation

Broker360 works with clients whose super and property strategies intersect.

We help ensure that:

• SMSF structures remain lender-friendly
• Compliance supports borrowing capacity
• Property strategies align with long-term planning

If Division 296 is influencing decisions around property, leverage, or restructuring, understanding lender expectations early prevents friction later.

Disclaimer: Information shared is general in nature and does not constitute financial, tax, legal, or credit advice. Please seek professional advice for your specific circumstances.