Client Note
Division 296 — What It Means for Large Super Balances
Relevant to members with (or approaching) $3m+ superannuation balances
Core change
From 1 July 2026, an additional personal tax applies to superannuation balances exceeding $3 million. The tax is calculated on realised earnings attributable to balances above key thresholds, currently $3m and $10m.
What this does
•
Effective tax on super earnings increases to ~30% between $3m–$10m and ~40% above $10m
• Pension-phase assets are no longer fully shielded from additional tax
• The tax is assessed personally (not at the fund level)
• Thresholds are indexed but recalculated annually based on total super balance
What has changed materially
•
Unrealised gains are NOT taxed as was originally proposed
• Early-year withdrawals (before 30 June 2027) can reduce initial exposure
• From 2027/28 onward, calculations use the higher of opening or closing balances — limiting withdrawal strategies
Interaction with wider Budget changes
•
Proposed 30% minimum tax on discretionary trusts significantly weakens traditional alternatives
• Post-Budget, super at 30–40% is often competitive relative to trust structures
• Investment companies and lower-income personal ownership become the main alternatives
Key risks
•
Exiting super can trigger significant one-off CGT and transaction costs
• Liquidity pressure for SMSFs holding illiquid assets (property, unlisted investments)
• Estate planning complications, particularly for surviving spouses, delays in estate administration due to delayed assessment of personal tax
• Overreacting to the tax without modelling long-term outcomes
Immediate considerations
•
Obtain accurate super balance (TSB) position prior to 30 June 2026
• Review asset valuations — particularly for SMSFs
• Consider strategies to equalise balances between spouses
• Model whether fund liquidity is sufficient to meet future tax liabilities
• Avoid major structural changes until broader tax settings are finalised
Our view
Division 296 reduces the attractiveness of very large super balances, but it does not eliminate super as a preferred structure. In many cases — particularly post-Budget — remaining within super will continue to be competitive once all costs, risks and alternatives are considered. Decisions to exit should only be made following detailed modelling across a long-term horizon.
Chancellors Chartered Accountants | Private Wealth Advisory
