Unpacking the new super tax: What Division 296 could mean for you

March 1, 2026 — 5:00am

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About midway through last year, you might have recalled an almighty hubbub about a new super tax, and how it was going to single-handedly ruin the economy, destroy our retirements, push over old ladies and steal your lunch money.

Attractively named “Division 296”, it proposes an additional 15 per cent tax on super balances that exceed $3 million, and 25 per cent for those over $10 million, though importantly, that tax only affects the earnings on the portion that exceeds those thresholds.

As often happens when the government mentions the phrase “new tax” and “super” in the same sentence, a portion of the population lost their minds, assuming that they’d be on the hook for hundreds of thousands of dollars in new taxes. Simultaneously, a different portion of the population went shopping for tiny violins.

After a couple of revisions – most notably one that removed an aspect of the bill that would tax unrealised capital gains – the bill looks set to become law, having been introduced to parliament earlier this month. If it does, the new tax will kick off on July 1.

The government has maintained that only about 80,000 Australians will be affected by the tax, and many of these will be people with SMSFs, which often have larger balances. However, if your super balance is nearing that amount, or is on track to exceed it at some point in the future, it’s something you might want to get across.

What you can do about it

So if you want to know how the new tax works, and if it’s worth worrying about, read on:

How it works: As mentioned, 296 is an additional 15 per cent tax only on the earnings on the portion of a super balance that exceeds $3 million (or 25 per cent if your balance is over $10 million). Take the hypothetical case of Mai, still working at age 58 with a super balance of $3 million, which increases to $3.1 million by June 30. Their earnings for the year are $100,000. To work out their tax liability, Mai calculates the proportion of their of taxable earnings over $3 million (3.1 - 3 ÷ 3.1), which comes to 3.23 per cent. This is then multiplied by the earnings, and then by the tax amount of 15 per cent, coming to an amount of $485 – or just 0.5 per cent of their earnings. Mai can then pay this amount themselves, or elect to have it deducted from their super fund. If Mai’s super balance was higher, then the proportion of earnings over $3 million would be higher, which would lead to them paying more tax. However, it would still represent a small percentage of their earnings.

So, do I need to worry about it? If your super balance is under $3 million, no, this does not affect you at all. And as the above example shows, even those with balances over the threshold will only have to pay relatively marginal amounts when compared to their earnings and overall assets. “Ultimately... it’s only going to be those with significantly more than $10 million in super per person, that will need to consider making real changes to their structure,” says Drew Meredith, founder at retirement wealth specialists Wattle Partners. “Even at 15 and 10 per cent, the average tax rate remains lower than marginal tax rates and the company tax rate.” Keep in mind that withdrawals from super are generally tax-free once you hit preservation age, and you can choose to have it levied from your super fund, meaning you don’t have to personally front it.

Can I avoid it? If you’re extremely set on trying to reduce or negate the amount of tax you pay, yes, there are some methods to do so, namely withdrawing your money from super (providing you are at an age you can do so) before the tax comes into effect. However, this can pose a raft of other problems and leave you open to other taxes such as capital gains tax if you choose to invest the amount you withdraw, or higher personal tax rates. “Simply reducing your balance to below $3 million by withdrawing assets may harm your long-term retirement outcomes more than the tax itself – especially given super’s tax-favoured status on withdrawal after retirement age,” says Mark Chapman, head of tax communications at H&R Block. For those with balances hitting the $10 million-plus mark who are set to face much higher tax rates, Chapman says some planning might be advisable. “For this cohort, professional tax and financial advice is almost certainly worthwhile,” he says.

Could there be future implications? The initial iteration of this tax did not index the thresholds, leading to a reasonable concern that young workers with strong super contributions could see themselves having to pay the tax by the time they retire. The $3 million and $10 million thresholds are now indexed (in $150,000 and $500,000 increments, respectively), but Chapman still holds concerns it could affect more people in the future. “The $3 million threshold is only loosely indexed to inflation. Without regular indexing, inflation and investment growth will push more people above the threshold over time, meaning Division 296 could become relevant to a broader group of future retirees,” he says. “[This] may influence long-term investment and retirement planning decisions − for example, whether to hold more wealth inside super or in alternative structures such as investment bonds or property outside super.”

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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© The Sydney Morning Herald