Status update on proposed tax for high super balances
A new tax on the earnings relating to super balances in excess of $3 million has been under development for several years now. While this Div 296 proposal isn’t yet law, there have been some important changes that could significantly impact your retirement planning strategy.
The Core proposal
As the proposal now stands, a new two-tier tax will apply to the earnings relating to large super balanc es from 1 July 2026.
Under the proposal, you'll face a personal tax of:
15% on earnings relating to total superannuation balances between $3 million and $10 million; and 25% tax on earnings relating to total superannuation balances above $10 million.
That is, the tax will apply to the money you earn from super amounts above the thresholds; it’s not an extra tax on your total balance. Total superannuation balances include assets in both superannuation savings and pensions/annuities.
The new tax can be paid from outside super or you can release money from your super fund to pay the tax. Combined with the existing 15% tax that super funds pay on fund earnings, this creates a combined tax rate of up to 30% and 40% on earnings relating to these large super balances.
Both thresholds will be indexed to inflation, making the impact of the proposed tax fairer than previous proposals. The most significant improvement is that the tax will now only apply to realised earnings. This means only actual capital gains you've made will be caught amongst other earnings.
For self-managed superannuation funds (SMSFs), capital gains that built up before 30 June 2026 will be effectively excluded from the Div 296 tax calculation through a separate notional cost base tracking system. Important changes that could catch you out A potential loophole has been closed. Previously, the percentage of earnings subject to the tax was based only on the percentage of your total superannuation balance over the threshold at the end of the financial year.
Now it's based on the higher of your balance at the start or end of the year. This change specifically targets people who might realise large gains during a year and then withdraw significant amounts before 30 June to try to avoid the tax.
If you're considering this strategy, you realistically have until 30 June 2027 to extract superannuation. In 2026–2027 only, the percentage will be based on your total super balance at the end of the year only (30 June 2027).
Action required for SMSF capital gains relief If you have an SMSF and want to take advantage of the capital gains relief for pre-30 June 2026 gains, you must actively opt in using an approved form. This isn't automatic, and there's a deadline – you must opt in by the due date of your 2026–2027 tax return. Even if no current members have more than $3 million in superannuation, it might still be worth opting in if you expect any members to exceed $3 million in the future and the fund has already accrued large gains.
How earnings will be split between members For SMSFs, the method for splitting the fund's Div 296 earnings between members will be set out in regulations (to be released), but Treasury has indicated this will involve obtaining an actuarial certificate.
This means some accumulation funds may need an actuarial certificate for the first time. What happens next The consultation period is short, closing on 16 January 2026, indicating the government wants to move quickly with this legislation.
When the proposal is legislated, the tax will commence from 1 July 2026. Time to review your strategy If you have a large total super balance, these changes require careful consideration of your retirement income strategy.
Contact our office to discuss how these changes might affect you and what steps you should take before the new tax commences.