Following more plot twists than a M. Night Shyamalan film, the much-discussed superannuation taxation changes are now law. They will come into effect on 1 July 2026. The new tax was colloquially called ‘the superannuation $3m tax’, as it related to additional taxation of superannuation balances in excess of $3m. However, the industry calls it Division 296 tax (div. 296). As shall we.
What should investors do to avoid additional tax on their superannuation?
Firstly, read the following summary to obtain an overview.
Secondly, if you are a First Samuel client with a superannuation balance over $2.5m (this is a single person’s member balance, not a fund total) do nothing. Your Private Client Adviser will contact you.
By the way, there is nothing to be gained in attending any industry seminars. Div. 296 changes are complex, especially for Self-Managed Superannuation Funds. You cannot navigate the technical complexity on your own. You will require individual analysis and advice. Managing the changes will require an individually tailored approach – all-inclusive as part of our service offering. Thirdly, if First Samuel isn’t managing your SMSF, it might be time to start. Reach out to our SMSF specialists.
What’s changed for super balance above 3 million
After Treasurer Jim Chalmers’ first attempt at taxing ‘excess superannuation balances’ failed in 2023, Treasury were required to consult with industry and come up with a better mousetrap.
Mousetrap v 2.0 was marginally better, eliminating some of the more absurd features of mousetrap v1.0; e.g. taxation of unrealised gains and lack of threshold indexation.
As advised by Australian Taxation Office – The applicable superannuation tax rates are now an extra 15% on the proportion of ‘earnings’ on balances above $3m (‘large balances’) and a further 10% on the portion of ‘earnings’ on balances above $10m (‘very large balances’).
In a welcome move, the respective thresholds will be subject to annual indexation (CPI) in $150,000 increments for the $3m threshold and $500,000 increments for the $10m threshold.
Additional important elements to be aware of are (at a high level):
- The changes come into effect from 1 July 2026; with tax becoming first payable in FY28
- Earnings for div. 296 are calculated separately to earnings for usual superannuation income tax purposes
- Capital gains will be captured as earnings in the year of realisation and will allow for existing discounting to be applied for assets held over 12 months
- You will pay the extra tax if the greater of your superannuation member balances (from all funds) on 1 July and on 30 June in a financial year is greater than the threshold (initially $3m)
- For the first year only (FY27) applicability is determined solely upon the member’s total superannuation balances the end of the year (30 June 2027)
- To ensure that only tax future capital gains from the commencement date are captured, a choice is provided to SMSFs. A SMSF can elect to “reset” the cost base of its investments to market values as at 1 July 2026 for div. 296 purposes. The election cannot be made selectively on individual assets – it’s an all or nothing decision at a fund level (not a member level)
- You have until you lodge your FY27 tax return to make the election, which is irrevocable
- If an election is made, the fund will need to track its separable cost bases for CGT and div. 296 tax purposes
Tax is to be assessed to the member personally, who can apply to their superannuation fund to release the amount.
What to do if your super balance is over $3m
Don’t panic, but start preparing!
The qualification in the first year is the member balance on 30 June 2027. This allows members time to consider whether to restructure their affairs or otherwise.
The first critical action item is determining whether your Self-Managed Superannuation Fund should elect to adopt a market value cost base (as at 30 June 2026) for div. 296 purposes.
As an ‘all encompassing’ option, this will depend on the unique unrealised capital gains position of each specific superannuation fund. Therefore, a key priority will be obtaining accurate valuations of assets as at 30 June 2026. The decision on election then needs to be made prior to the lodgement of the FY27 tax return. Accordingly, this year more than ever, your accountant and financial adviser will need to be working in unison.
In conclusion
There is no one size fits all “rules” to follow as the consideration involves a calculation of total taxation impost inside superannuation versus outside superannuation.
Careful analysis needs to be undertaken to project the future impact. The likely death benefits tax and capital gains tax considerations must be factored into any analysis.
There is little value that any superannuation seminars can afford. Analysis and advice are highly dependent on individual circumstances.
If you are a First Samuel client with a superannuation balance over $2.5m (this is a single person’s member balance, not a fund total) do nothing. Your Private Client Adviser will contact you. If you are not a First Samuel client, please get in touch to have an obligation free discussion.
This piece was co-authored by Braith Morrow, our Head of Advice, and Natalie Eden, Senior Private Client Adviser.
