Division 296 Tax Calculator

How Division 296 Tax Works

Division 296 is a proposed addition to Australian tax law that introduces an additional 15% tax on superannuation earnings for members whose total super balance exceeds A$3 million. Currently, super fund earnings are taxed at a flat 15% under the Income Tax Assessment Act 1997. Under Division 296, the portion of earnings attributable to the balance above $3 million would face an additional 15%, bringing the effective tax rate on those earnings to 30%. According to the Australian Treasury, this measure is projected to affect approximately 80,000 individuals (less than 0.5% of all super fund members) and raise an estimated A$2 billion per year in additional revenue.

The legislation was introduced to Parliament in late 2023 and is proposed to apply from 1 July 2026. One of the most debated aspects is that "earnings" include unrealised capital gains — increases in asset values that have not been sold. This means members could face a tax liability without receiving any cash, potentially forcing the sale of illiquid assets like property within SMSFs. For broader Australian tax planning, see our Superannuation Calculator and Australian Income Tax Calculator.

The Division 296 Formula

The Division 296 tax formula apportions total super earnings based on the fraction of the balance exceeding the $3 million threshold:

Division 296 Tax = Earnings x (Balance - A$3,000,000) / Balance x 15%

• Earnings: Total super fund earnings for the financial year, including realised and unrealised capital gains, interest, dividends, and rental income.
• Balance: Your total superannuation balance across all funds at the end of the financial year.
• Threshold: A$3,000,000 — the amount below which no additional tax applies. This threshold is not indexed to inflation.
• Rate: 15% additional tax on the apportioned earnings above the threshold.

Worked example: A member has a total super balance of A$5 million with A$400,000 in earnings. The proportion above threshold: (5,000,000 - 3,000,000) / 5,000,000 = 0.40 (40%). Division 296 tax: A$400,000 x 0.40 x 0.15 = A$24,000. The effective additional tax rate on total earnings is 6% (24,000 / 400,000). Combined with the existing 15% super tax, the total tax on earnings related to the above-threshold portion is 30%.

Key Terms You Should Know

Total Superannuation Balance (TSB) — the sum of all your superannuation interests across all funds, including accumulation accounts, defined benefit interests, and pension accounts. The Australian Taxation Office (ATO) calculates your TSB at 30 June each year using member statements from all super funds.

Unrealised capital gains — the increase in value of assets that have not been sold. Under Division 296, these are included in "earnings," meaning you could owe tax on paper gains even without receiving cash. This is unprecedented in Australian superannuation taxation.

Negative earnings carry-forward — if your super balance decreases in a year (negative earnings), the loss can be carried forward to offset Division 296 tax in future years. This provides some protection against being taxed on gains that are later reversed.

Self-Managed Super Fund (SMSF) — a super fund with 1-6 members who are also trustees, managing their own investments. SMSFs holding illiquid assets (property, private company shares) face particular challenges under Division 296 because they may lack cash to pay tax on unrealised gains.

Division 296 Tax at Different Balance Levels

The following table illustrates the Division 296 tax impact at various super balances, assuming 8% annual earnings (a typical balanced fund return). The "Effective Additional Rate" shows what percentage of total earnings goes to Division 296 tax specifically.

Practical Examples

Example 1 — Balanced fund member: A 58-year-old with A$4.5 million in a balanced industry fund earning 8% (A$360,000). Proportion above threshold: (4.5M - 3M) / 4.5M = 33.3%. Division 296 tax: A$360,000 x 0.333 x 0.15 = A$18,000. This equates to an additional 5% effective rate on total earnings, on top of the existing 15%. Use our HECS-HELP Calculator for other Australian tax obligations.

Example 2 — SMSF with property: An SMSF holds A$6 million including a A$2 million commercial property that appreciated A$200,000 (unrealised) plus A$280,000 in other earnings. Total earnings: A$480,000. Proportion: (6M - 3M) / 6M = 50%. Tax: A$480,000 x 0.5 x 0.15 = A$36,000. The SMSF must find cash for this A$36,000 without selling the property, potentially requiring the sale of liquid assets or drawing from cash reserves.

Example 3 — Down-market year: A member with A$5 million sees their balance drop to A$4.6 million (negative earnings of A$400,000). No Division 296 tax is owed this year, and the A$400,000 negative earnings can be carried forward. If next year's earnings are A$500,000, the taxable earnings are reduced by the carry-forward: A$500,000 - A$400,000 = A$100,000 net. This provides significant protection during market downturns.

Strategies to Manage Division 296 Exposure

• Withdraw excess super to personal assets: Reducing your super balance below A$3 million eliminates Division 296 tax entirely. Members over 60 can withdraw lump sums tax-free from their super at any time.
• Rebalance to lower-growth assets: Shifting the above-threshold portion to defensive assets (cash, fixed interest) reduces unrealised gains exposure, though this may sacrifice long-term returns.
• Consider the impact on defined benefit members: Defined benefit interests are calculated using a notional value that may differ from actual entitlements. The ATO has published specific rules for how DB interests count toward the A$3M threshold.
• Plan SMSF liquidity: If your SMSF holds illiquid assets, maintain sufficient cash reserves to pay potential Division 296 tax without forced asset sales. A reserve of 2-3% of balance above threshold provides a buffer.
• Monitor the A$3M threshold annually: Since the threshold is not indexed to inflation, members currently below A$3M may be affected in future years as balances grow. At 7% average returns, a A$2M balance reaches A$3M in approximately 6 years.