The Australian Government’s “Better Targeted Superannuation Concessions” reform, commonly referred to as Division 296, has now been enacted and will commence from 1 July 2026. This measure introduces additional tax considerations for individuals with substantial superannuation balances. For affected taxpayers, it is essential to understand how the rules operate, the policy rationale behind them, and the planning implications moving forward.

Policy Intent Behind Division 296

The primary objective of Division 296 is to improve the equity and long-term sustainability of superannuation tax concessions. Rather than applying broad changes across the entire system, the legislation specifically targets individuals with significant super balances. In doing so, it seeks to ensure that higher-balance members pay an increased level of tax on earnings attributable to those balances.

Applicability: Thresholds and Tax Outcomes

From the 2026–27 income year onward, Division 296 applies where an individual’s total superannuation balance exceeds prescribed thresholds:

• $3 million (large balance threshold)
• $10 million (very large balance threshold)

These thresholds will be indexed over time. The effect of the new regime is an increase in the effective tax rate applied to earnings associated with balances above these limits:

• Balances up to $3 million remain subject to the standard 15% tax rate within the fund
• Earnings linked to balances between $3 million and $10 million will attract an additional 15% tax, bringing the effective rate to 30%
• For balances exceeding $10 million, a further 25% tax applies, resulting in a combined effective rate of 40%

Certain individuals are excluded from the operation of Division 296 despite exceeding the thresholds. These include minors receiving death benefit pensions and individuals who have contributed structured settlement amounts arising from personal injury compensation.

In the event of death, an individual’s total superannuation balance ceases to exist. However, Division 296 may still apply for the income year in which death occurs (other than in the first year of implementation), provided the individual’s balance exceeded $3 million at the beginning of that year. As superannuation does not generally form part of the estate, this outcome highlights the importance of incorporating these rules into estate planning considerations.

Calculation and Assessment Mechanism

For self-managed superannuation funds (SMSFs), Division 296 earnings are determined based on taxable income, subject to a number of adjustments. These adjustments account for items such as concessional contributions included in assessable income, exempt pension income, non-arm’s length income (already taxed at the highest marginal rate), and income derived through pooled superannuation trusts.

Additional modifications may apply in relation to capital gains where the fund has elected to apply specific small-fund CGT provisions.

Once the adjusted earnings figure is established, it is allocated to individual members using an actuarially determined proportion. The Australian Taxation Office (ATO) then uses this information to calculate and issue the individual’s Division 296 tax liability.

Although the liability is imposed on the individual rather than the superannuation fund, payment flexibility is provided. Taxpayers may either settle the liability personally or elect to have the amount withdrawn from their nominated superannuation interest.

Practical Considerations and Planning Opportunities

Individuals approaching or exceeding the relevant thresholds should seek professional advice to assess the financial impact of Division 296. This may involve tailored projections, consideration of available elections (including capital gains tax options), and planning for cash flow and compliance requirements.

The introduction of this measure also presents an opportunity to reassess whether maintaining excess wealth within the superannuation environment remains optimal. Alternative investment structures may, in some cases, provide greater flexibility or tax efficiency for amounts above the applicable thresholds.

Early and proactive planning will be critical to managing the implications of Division 296 effectively.

Need Help?

By working with us as your professional tax accountant and mortgage broker, you can be confident that your loans are structured to protect your tax position, maximise deductions, and avoid costly mistakes, giving you greater peace of mind and more control over your financial future.

Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Chartered Accountants Australia and New Zealand (CA ANZ), membership certification of the Australian Society of Certified Practising Accountants (CPA), Registered Australia Tax Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Zoe Ma @ Pitt Martin Tax