$3M IN SUPER? HERE'S YOUR NUDGE ON DIVISION 296

A new tax on high super balances passed the Senate and starts 1 July 2026. While there are decisions to make, there's no need to rush or panic. Here's what matters, and what to do about it.

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THE BASICS 

SUPER EARNINGS ABOVE $3M WILL BE TAXED MORE. HERE’S BY HOW MUCH.

Division 296 adds a layer of tax on top of what your fund already pays. It applies only to the slice of your earnings above each threshold - not your whole balance. 

Up to $3M

15%

No change

$3M – $10M

30%

+15% Div 296

Above $10M

40%

+25% Div 296

The thresholds rise with CPI over time ($150,000 and $500,000 increments respectively). And importantly - this tax is assessed on you personally, not your fund. You choose whether to pay it yourself or pull money from super to cover it. 

One thing the legislation got right: unrealised gains on assets inside your fund are not taxed. The tax is based on taxable income concepts - paper gains don’t count until they’re realised.

HOW THE TAX WORKS 

IT’S NOT JUST A FLAT RATE ON EVERYTHING ABOVE $3M. THE MATHS MATTERS.

Two things determine your bill each year: your “earnings” for Div 296 purposes, and what proportion of your balance sits above the threshold. 

Earnings aren’t the same as your fund’s investment return - for SMSF members, they’re broadly the fund’s taxable income, adjusted for contributions and pensions. A special actuarial certificate will be needed each year to allocate earnings to each member. For members of large APRA regulated funds, an earnings figure will be attributed to each member on a “fair and reasonable basis” (guidance of which is currently in draft form). 

Nudge on the proportion rule: the calculation uses the higher of your opening and closing balance for the year. Dropping your balance just before 30 June won't save you. Plan earlier. (Note: in FY2027 only, just the closing balance at 30 June 2027 is used — the higher-of rule kicks in from FY2028.)

WHAT DOES THIS ACTUALLY COST

Here’s a brief example:

Member A — FY2027	Member B — FY2028
Balance at 30 June 2027 $15M	Balance at 1 July 2027 $5M
Div 296 earnings* $1M	Balance at 30 June 2028 $4M
Proportion above $3M 80%	Div 296 earnings* $200,000
Tax on $3M threshold $120,000	Higher balance used $5M
Proportion above $10M 33.3%	Proportion above $3M 40%
Tax on $10M threshold $50,000	Tax on $3M threshold $12,000
Total Div 296 tax $170,000	Total Div 296 tax $12,000

Member A — FY2027
Balance at 30 June 2027 $15M
Div 296 earnings* $1M
Proportion above $3M 80%
Tax on $3M threshold $120,000
Proportion above $10M 33.3%
Tax on $10M threshold $50,000
Total Div 296 tax $170,000

Member B — FY2028
Balance at 1 July 2027 $5M
Balance at 30 June 2028 $4M
Div 296 earnings* $200,000
Higher balance used $5M
Proportion above $3M 40%
Tax on $3M threshold $12,000
Total Div 296 tax $12,000

* Earnings figures are illustrative only — actual Div 296 earnings are determined by the Tax Office based on your fund's taxable income.

THE CGT RESET - THIS ONE’S FOR EVERYONE

NOT OVER $3M YET? THIS STILL MATTERS TO YOU

The legislation allows SMSFs to reset the cost base of assets held at 30 June 2026 to market value. That means future Div 296 tax won’t apply to gains that built up before the new rules started. 

Every SMSF can elect in - not just those already over $3M. If growth is going to take you there, locking in this adjustment now could save real money later.  

The catch: it applies to all CGT assets in the fund. You can’t cherry-pick. 

The election deadline is the due date of your 2027 SMSF annual return - generally 15 May 2028. Late lodgement of your 2026 return brings that deadline forward. Don’t let an admin slip cost you this option.

IS SUPER STILL WORTH IT? 

FOR MOST PEOPLE BETWEEN $3M AND $10M - YES, STILL.

Super at 30% is still more tax-effective than most alternatives. The tax only bites the earnings above the threshold, not everything inside. For most people in this range, and particularly if you’re in a wealth accumulation phase, staying put and letting the structure do its job remains the right call. That said, "do nothing" is still a decision but the right answer depends on your situation. 

Withdrawing below $3M might make sense for some. But it has its own tax and estate planning consequences. Don’t move money without advice.

IF YOU HOLD UNLISTED OR SPECULATIVE ASSETS 

SOME ASSETS NEED A CLOSER LOOK

If you hold unlisted or speculative investments inside super and their value swings significantly, you may find yourself in Div 296 territory without ever seeing that value realised. A spike in valuation could tip your total super balance above $3M - triggering the tax - and if that uptick is subsequently reversed, you've paid tax on a gain that effectively never existed. 

Worse, if those same assets drop in value the following year, the notional loss can’t be carried forward to offset future Div 296 earnings. You’ve paid tax on a gain you no longer have.  

The nudge: if you hold unlisted, illiquid, or highly speculative assets inside super, now is the time to think carefully about whether that's still the right structure for them.

IF YOU WANT TO PROTEST 

EXITING IS AN OPTION. JUST DO IT PROPERLY. 

If you'd rather not deal with Div 296 at all, reducing your super balance below $3M is a legitimate strategy. But it needs to be done carefully - a rushed exit can cost more than the tax itself. And it's not a one-off: you'll need to stay below $3M at every 30 June, not just get there once. 

Watch your assets carefully. Make sure you are well below $3M’ - if you realise gains to withdraw funds but don’t quite make it below $3M you may have signed yourself up for a bigger Div296 bill than you otherwise would have had as capital gains are ‘earnings’.

The deadline is 30 June 2027 - but that doesn’t mean wait until June 2027. Good planning takes time. Come and talk to us now.

THE BIGGER PICTURE 

SUPER WAS BUILT AS AN ACCUMULATION VEHICLE, NOT A TRANSFER VEHICLE

Super has long been one of Australia's most tax-effective ways to accumulate wealth. Division 296 is the latest - and most significant - watering down of that advantage. It won't be the last. 

The bigger picture here isn't just tax. It's generational. 

This regime sharpens the focus on something that hasn’t changed but is rarely talked about: death benefits tax. The tax on super paid to non-dependants on death hasn’t moved, and this regime makes the cost of getting your superannuation and estate planning wrong much higher.  

What is your plan for the realisation of fund assets and withdrawal of funds from the superannuation system over time? 

Where do you want your assets to end up? What does your legacy look like? These aren’t morbid questions. They’re planning ones. 

The new tax is also cause for a review of your estate planning arrangements. If a surviving spouse receives a death benefit or reversionary pension which pushes their total super balance above $3M, there will be Div296 implications for the survivor that are something to work through now – not later.    

If you’re a client of Nudge, we’ll be working through these questions with you progressively ahead of 30 June 2027 to nudge things in the right direction.  

WHAT TO DO AND WHEN 

TWO DATES THAT MATTER RIGHT NOW.

30 June 2027	If you want to get your balance below $3M before Div 296 applies, this is the date. Your balance here sets your first-year liability.
~15 May 2028	Deadline to elect into the CGT cost base reset for your SMSF. Miss this and you may have left money on the table.

The introduction of Division 296 is not cause for panic – but it is a good prompt to revisit your broader super strategy.

If you and your spouse are approaching a combined balance of $3M, or you’re thinking about how your super gets distributed, there are Div 296 implications for death benefits and reversionary pensions that are worth working through with us. 

We’re working through this with our SMSF clients ahead of 30 June 2027. If you’re over - or approaching - $3M, now’s the time to nudge things into shape.

Get in touch → hello@nudge.accountants