The Australian Government’s long-debated Division 296 superannuation tax reforms have now passed the Senate, bringing significant changes to how large superannuation balances will be taxed in the future.
For trustees, advisers and SMSF members, this is one of the most significant superannuation policy changes in years. While it affects only a relatively small number of Australians today, its long-term implications for retirement planning and wealth structuring are substantial.
Although it affects relatively few Australians today, the long-term implications are significant. The legislation has been strongly criticised because it changes the tax treatment of super balances already accumulated in a system designed for long-term stability, and because Senate debate was “guillotined”, curtailing scrutiny before the bill was pushed to a vote.
This article explains what has changed, who is affected, and what SMSF members should understand moving forward.
What Has Just Happened
In March 2026, the “Building a Stronger and Fairer Super System Bill” passed the Senate with support from the Greens, clearing the way for the government’s proposed Division 296 tax changes. Once formally enacted, the legislation introduces additional taxation on superannuation earnings for individuals with large super balances. The objective of the reform, according to the government, is to reduce tax concessions available to very large super accounts while maintaining incentives for retirement savings.
The Core Rule: Extra Tax on Super Balances Above $3 Million
Division 296 introduces an additional tax on earnings attributable to super balances above $3 million. Under the revised framework:
- Earnings attributable to balances above $3 million will face an additional 15% tax
- Earnings attributable to balances above $10 million will face a higher rate
- The tax applies in addition to the existing 15% tax inside super funds
This means some earnings may effectively be taxed at:
- 30% total for balances above $3 million
- Up to 40% for balances above $10 million depending on the tier applied.
Importantly, the tax is assessed to the individual, not the super fund itself.
Key Changes Compared With Earlier Proposals
Earlier versions of the proposal caused significant concern across the SMSF industry because they proposed taxing unrealised gains (paper profits on assets that had not been sold). The final legislation includes several important changes:
1. Unrealised gains removed
The revised bill taxes realised earnings rather than unrealised gains, addressing one of the sector’s biggest criticisms.
2. Indexed thresholds
The $3 million threshold (and the new $10 million tier) will now be indexed over time so inflation does not automatically capture more taxpayers each year.
3. Higher tier introduced
Balances above $10 million will face a higher tax rate under a second tier.
4. Optional cost-base reset
A one-off adjustment allows taxpayers to exclude gains accrued before the new system begins.
These changes mean the final law is materially different from the original proposal that triggered widespread criticism.
How the Tax Is Calculated
The calculation is based on the movement in an individual’s total super balance during the year, adjusted for contributions and withdrawals. The general process is:
- Calculate the individual’s annual super earnings
- Identify the proportion of the balance above $3 million
- Apply the Division 296 tax to that proportion of earnings.
For example:
- If a person has $4 million in super
- $1 million of that balance is above the $3 million threshold
- 25% of the earnings are attributable to the excess balance
The additional tax would apply only to that portion.
Important Point for SMSF Members
The tax is applied per individual across all super funds combined, not per fund. This means the ATO will aggregate balances across SMSFs, APRA-regulated funds (‘Big Super’) and other super accounts to determine whether the $3 million threshold has been exceeded.
Who Is Likely to Be Affected
Today, relatively few Australians have super balances exceeding $3 million. However, the number is expected to grow over time due to long-term investment growth, property held inside SMSFs, and business owners using super as a retirement vehicle. The policy debate has therefore focused not only on current impacts, but also on how the rules may affect future retirees.
What SMSF Trustees Should Be Thinking About
For most SMSF members, there is no immediate action required. If you are our client and are likely to be affected by this change now or in the short to medium term, your accountant will reach out to you to discuss your needs.
For those approaching or exceeding the $3 million threshold, strategic planning will become increasingly important. Areas to review may include:
- future contribution strategies
- asset allocation inside super
- liquidity management for tax payments
- interaction with estate planning and wealth structures.
These considerations will differ significantly depending on individual circumstances.
The Bigger Picture
The passing of Division 296 marks a notable shift in the philosophy of Australia’s superannuation system. Historically, superannuation has been structured as a low-tax retirement savings environment. The new rules represent a move toward targeting tax concessions at smaller balances while reducing them for very large accounts. Whether this becomes the first step toward further superannuation changes remains a topic of ongoing industry debate.
Summary
The new super legislation introduces additional tax on earnings linked to balances above $3 million.
Key points:
- The Division 296 tax has passed the Senate and is expected to become law
- It imposes additional tax on earnings linked to large super balances
- Unrealised gains have been removed from the calculation
- The thresholds will be indexed over time
- The tax is assessed at the individual level across all super accounts
For most Australians the changes will have no immediate effect, but for those with larger super balances — particularly SMSF members — the reforms may influence long-term retirement planning.
If you are our client and are likely to be affected by this change now or in the short to medium-term, we will reach out to you to discuss your needs and future strategy planning.