The new Superannuation tax on balances above $3 million: what the law does, how It operates, and what taxpayers must understand

1. The measure in brief

From 1 July 2026, Australia will introduce a new tax designed to reduce the concessional treatment of very large superannuation balances.

The measure applies to individuals, not superannuation funds. It targets individuals whose total superannuation balance exceeds $3 million at the end of a financial year.

The tax is imposed as an additional tax on earnings attributable to the portion of the balance above $3 million. It is not a tax on contributions. It is not a tax on withdrawals. It is not confined to realised income in the ordinary income tax sense.

2. Legislative status and commencement

The measure is commonly referred to as Division 296.

The operative date is 1 July 2026. The first year of operation is the 2026–27 income year. The first assessments are expected to issue after 30 June 2027.

Earlier public drafts referred to earlier commencement dates. Those drafts have now been overtaken. Planning should proceed on the basis of a 1 July 2026 commencement.

3. Who is affected

An individual will be subject to the regime if their total superannuation balance exceeds $3 million at 30 June of an income year.

Total superannuation balance includes:

Interests in self-managed superannuation funds
Interests in retail and industry funds
Defined benefit interests, valued using statutory actuarial methods

The test is applied annually. An individual may move in and out of the regime from year to year.

4. The structure of the tax

The tax operates outside the fund but relies on information reported by superannuation providers to the Commissioner.

In simplified terms, the calculation proceeds as follows.

Step 1. Determine opening and closing balances
The Commissioner compares the individual’s total superannuation balance at the start and end of the income year.

Step 2. Adjust for contributions and withdrawals
Net contributions are removed from the calculation so that ordinary accumulation is not double counted.

Step 3. Calculate “earnings”
Earnings are calculated using a statutory formula based on movements in total superannuation balances. This is not the same concept as taxable income.

Step 4. Apportion earnings above $3 million
Only the proportion of earnings attributable to the part of the balance exceeding $3 million is subject to the additional tax.

Step 5. Apply the tax rate
That apportioned amount is taxed at 15 percent.

The assessment is issued to the individual, not the fund. The individual may elect to release funds from superannuation to pay the liability.

5. Interaction with existing superannuation taxes

The new tax does not replace existing superannuation taxes.

Fund-level taxes continue to apply, including:

15 percent tax on earnings in the accumulation phase
Capital gains tax rules applicable within superannuation funds

The practical effect is that earnings attributable to balances above $3 million may face a higher effective tax burden than earnings below the threshold.

6. The treatment of unrealised movements

One of the defining features of the regime is the way “earnings” are calculated.

The statutory formula captures changes in value, not merely realised income. This means increases in asset values may contribute to taxable earnings even where no asset has been sold.

If values later fall, the regime allows losses to be carried forward to offset future earnings under Division 296. There is no refund of tax paid in earlier years.

This represents a departure from traditional income tax principles. It is nevertheless a policy choice squarely within Parliament’s power.

7. Defined benefit interests

Defined benefit members are not excluded from the regime.

Their superannuation interests are valued using prescribed actuarial formulas, not by reference to actual account balances. This can result in tax liabilities arising without corresponding increases in accessible benefits.

The design raises legitimate concerns around timing, liquidity, and equity for defined benefit members.

8. No indexation of the threshold

The $3 million threshold is fixed.

It is not indexed to inflation or wages. Over time, this will bring a larger number of individuals into the regime, even where real purchasing power has not increased.

This design choice appears deliberate and should be understood as part of the long-term fiscal architecture of the measure.

9. What taxpayers should be considering now

This is not a narrow technical amendment. It represents a structural shift in how large superannuation balances are taxed.

Taxpayers with significant superannuation interests should be considering:

Asset allocation and volatility within superannuation
Liquidity planning to fund future personal tax liabilities
Whether continued accumulation inside super remains optimal
Interaction with estate planning objectives
The impact on SMSFs holding illiquid assets
Valuation and reporting of defined benefit interests

There is no universal answer. Consequences depend heavily on individual circumstances, investment profiles, and time horizons.

10. Closing observation

Superannuation has always involved a balance between concession and constraint.

Division 296 marks a clear recalibration of that balance for large accumulations. The measure is conceptually simple, but its practical effects are neither small nor straightforward.

For those near or above the threshold, precision in understanding the law and discipline in planning will matter more than ever.