After more than two years of debate, the Government has finalised its $3 million supercap, and the final version that passed is materially different than what was originally proposed back in February 2023. If you have a large superannuation balance, or you’re likely to have one in the coming years, it’s worth understanding exactly what changed and what it means for you.

There's a new 15% tax on large super balances from 1 July 2026

Under new Division 296 of the tax law, individuals with a Total Superannuation Balance (TSB) above $3 million will pay an additional 15% tax on the portion of their superannuation earnings attributable to the amount above that threshold. This is imposed on you personally, not on your super fund, though you have the option of releasing money from your super to cover it.

The measure starts from 1 July 2026 (the 2027 income year), with the first assessments expected to land in the 2028 income year.

What changed from the original proposal and why it matters

The original 2023 proposal attracted serious criticism, largely because it would have taxed unrealised gains, meaning you could owe tax on a paper increase in your super balance you hadn’t actually received, and there was no indexation of the $3 million threshold at all. The finalised version addresses both concerns, along with several other changes:

1. Unrealised gains are no longer taxed

This is the single biggest change. Division 296 tax is now calculated by reference to a fund’s realised earnings, broadly, actual taxable income, rather than the movement in your account balance over the year. If your super assets have simply gone up in value on paper but haven't been sold or distributed, that growth is not subject to Division 296 tax.

2. The $3 million threshold is now indexed

The threshold is riising in $150,000 increments in line with the Consumer Price Index. It won’t stay fixed at $3 million indefinitely, it will gradually increase over time, similar to other indexed superannuation thresholds.

3. A second, higher threshold of $10 million now applies

‍Rather than one flat 15% rate above $3 million, the structure is now tiered

• 15% tax on earnings attributable to the portion of your TSB between $3 million and $10 million; and
• An additional 10% tax (25% total) on earnings attributable to the portion of your TSB above $10 million, which is also indexed, in $500,000 increments.

4. Your TSB is checked at two points, not one

You can be caught by Division 296 tax for a given year if your TSB exceeds the threshold either at the end of the previous 30 June or at the end of the current income year. This is designed to stop people temporarily withdrawing money right before 30 June purely to dodge the tax for that year, only to put it back afterwards. (For the very first year, 2027, only your balance at 30 June 2027 counts, since there’s no “prior year” measurement point yet.)

5. The commencement date was pushed back

The date was pushed back from the originally proposed 1 July 2025 to 1 July 2026, giving affected individuals an extra year to plan.

How the calculation actually works

Working out your Division 296 tax liability for a year involves four steps:

Step 1 Total superannuation earnings

This is your share of your fund’s earnings (realised income) for the year, added up across all your super interests, both accumulation and pension phase.

Step 2 What proportion of your TSB sits above each threshold?

The formula is:

(Your TSB −threshold) ÷ Your TSB × 100

For example, Peter hasa TSB of $4 million at 30 June 2027. The proportion above the $3 millionthreshold is ($4m − $3m) ÷ $4m = 25%.

If your TSB also exceeds $10 million, you calculate a second proportion the same way, using the $10 million threshold instead.

Step 3 Apply those proportions to your total earnings

Your “taxable superannuation earnings” (taxed at 15%) is your total earnings × the proportion above $3 million. If applicable, your “very large superannuation balance earnings component” (taxed at an additional 10%) is your total earnings × the proportion above $10 million.

Step 4 Apply the tax rates to each component and add them together

For example, Angelo holds two interests in his SMSF at 30 June 2027: an accumulation interest worth $3 million (earning $150,000 for the year) and a pension interest worth $2 million (earning $100,000 for the year), a total TSB of $5 million.

• Total superannuation earnings: $150,000 + $100,000 = $250,000
• Proportion of TSB above $3 million: ($5m − $3m) ÷ $5m = 40%
• Taxable superannuation earnings: $250,000 × 40% = $100,000
• Division 296 tax liability: $100,000 × 15% = $15,000

Since Angelo’s TSB doesn't exceed $10 million, the additional 10% rate doesn't come into play for him.

Who pays and how?

The ATO calculates and assesses Division 296 tax based on information reported by superfunds (including SMSFs), you don’t need to self-assess it. Once assessed, you have 84 days to pay, and like other tax debts, interest applies if you don't pay on time.

You can pay it from your own funds outside super, or you can elect to have it paid from your super, similar to how Division 293 tax (the existing extra tax on high-income earners’ concessional contributions) is currently handled. If you choose the super release option, you submit an election within 60 days of assessment, and your fund then has 10 business days to pay the ATO on your behalf.

A point worth flagging for SMSF trustees and executors

Division 296 tax can still apply in the year someone dies (other than a transitional exemption for deaths in the 2027 income year itself), and the ATO will issuethe assessment to the deceased’s estate, potentially well after death, and potentially after super death benefits have already been paid out to beneficiaries. Executors will need to factor this into how much they retain in an estate before distributing it.

What can you do about this now?

If your TSB is approaching, at, or above $3 million, or you expect it to be by 30 June 2027, there are several things worth thinking through well before the measure starts:

Plan for liquidity

Since thetax is calculated on realised earnings, your actual cash-flow exposure will vary year to year, but it’s still a genuine, recurring liability to budget for, whether you pay it personally or from your fund.

SMSF asset valuations matter more than ever

Your TSB is based on the market value of your fund’s assets. Getting valuations right, particularly for illiquid assets like property, at 30 June each year is now directly tied to a real tax outcome, not just a compliance formality.

Think carefully about the tax considerations before withdrawing from super to invest elsewhere

Because unrealised gains aren’t taxed under the final rules, the case for pulling money out of super purely to avoid Division 296 tax is weaker than many people assumed when the measure was first proposed. In many cases, the tax cost of triggering a withdrawal (including any CGT on selling fund assets) may outweigh the cost of simply continuing to hold the investment in super and accepting the Division 296 tax that comes with it. This is genuinely a case-by-casecalculation, not a blanket rule either way.

Consider non-tax factors too, particularly asset protection; SMSFs generally offer stronger protection than holding investments personally, which is a real factor alongside the tax cost.

Think about future contributions if your balance is already large. Strategies like downsizer contributions or small business CGT cap contributions don’t have aTSB eligibility test, but adding to an already-large balance increases the earnings that will be exposed to Division 296 tax going forward.

Consider spouse balances together. The cap applies per person, not per couple, so if one spouse’s balance is well above $3 million while the other’s is comfortably below it, equalising balances between spouses (where legally and practically possible) may reduce the household's overall exposure.

Get in touch with us today if you want to model how Division 296 tax is likely to affect you

Given the calculation depends on the specific composition of your superannuation interests, your fund structure, and your broader financial position, this is genuinely an area where personalised advice matters; generic rules of thumb won’t capture your actual exposure or the best response to it.

If your super balance is approaching $3 million, or already exceeds it, get in touch with our office so we can model how Division 296 tax is likely to affect you and talk through the options available before the measure starts on 1 July 2026.

This article is general in nature and does not constitute tax or financial advice. It is based on the Treasury Laws Amendment (Building a Stronger and FairerSuper System) Act 2026 as finalised, current as at mid-2026, and does not address defined benefit interests or other special cases. Speak with us abouthow these rules apply to your specific circumstance.