Division 296: the $3 million super tax is now law

For three years the “$3 million super tax” was a proposal — announced, drafted, debated, and ultimately allowed to lapse in its original form. That is no longer the position. Division 296 of the Income Tax Assessment Act 1997 is now law, in a redesigned form, and 2026-27 is the first income year in which it can apply.

Two Acts were needed because section 55 of the Constitution requires laws imposing taxation to deal only with the imposition of taxation: the main Act carries the machinery and the Imposition Act imposes the tax itself. On commencement mechanics, the Imposition Act and Schedule 1 of the main Act commenced on the first quarter day after assent — 1 April 2026 — while the substantive tax applies from income years starting 1 July 2026. Schedule 4, which lifts the low income superannuation tax offset, commences on 1 July 2027.

Division 296 reduces superannuation tax concessions for individuals whose total superannuation balance exceeds a threshold, by applying an additional tax to the portion of their superannuation earnings attributable to the balance above that threshold. It does not change the tax paid inside the fund, and it does not tax the whole balance or the whole of the earnings.

Three design features distinguish the enacted law from the lapsed 2023 bills. First, it applies to realised earnings only — interest, dividends, rent and realised capital gains — with the taxation of notional (unrealised) capital gains and losses explicitly removed. Second, both thresholds are indexed to the Consumer Price Index: the $3 million threshold in $150,000 increments and the $10 million threshold in $500,000 increments, an approach the Treasurer described as maintaining relativity with the transfer balance cap (explained in our resource on how the transfer balance cap works). Third, there is a second tier above $10 million that did not exist in the original design.

The transitional first year. Under subsection 296-1(2) of the Income Tax (Transitional Provisions) Act 1997, whether Division 296 tax is payable for 2026-27 — and how much — is determined solely by reference to the total superannuation balance at 30 June 2027. The opening-balance test only starts to matter from the following year. This is a statement of what the law says, not a suggestion to manage a balance around the testing date; any such decision is a personal one that may involve financial product advice.

The one-off cost-base reset election. Sections 296-50 and 296-55 of the Income Tax (Transitional Provisions) Act 1997 let small superannuation funds elect to reset the cost base of assets to their 30 June 2026 market value — for Division 296 purposes only, so it does not alter the fund’s ordinary CGT position. The election is voluntary, applies to all of the fund’s assets rather than asset by asset, is irrevocable, and must be made by the due date of the fund’s 2026-27 tax return.

Liability rests with the individual member, not the fund, where they have taxable superannuation earnings for the year. The Act carves out exceptions in sections 296-20 to 296-25 for child recipients and for people who receive structured settlement contributions, and certain “Division 296 excluded interests” apply to constitutionally protected funds — reflecting the constitutional limits recognised in Austin v Commonwealth (2003) and Clarke v FCT (2009) for State higher-level office holders and Commonwealth justices and judges.

On scale: when it announced the redesign on 13 October 2025, the Government said the measure would affect “less than 0.5 per cent of all Australians in 2026-27”. We do not publish a more precise figure, because none was verifiable from a primary source.

The same Act also contains an unrelated change worth knowing about. Schedule 4 lifts the low income superannuation tax offset from 1 July 2027: the income threshold rises from $37,000 to $45,000 and the maximum payment rises from $500 to $810. The Government estimates around 1.3 million workers will benefit, with an average increase of $410 for those affected.

The primary law is settled; the administrative layer is not. Treasury consulted on draft regulations under the new Act from 17 March to 7 April 2026 — regulations that will prescribe matters such as valuation methods for superannuation interests. Whether those regulations had been made and registered as at 12 July 2026 could not be verified, so this resource does not state that they are final, and it does not describe the SMSF-specific mechanics that sit inside them.

• Final regulations — including prescribed valuation methods, and any requirements specific to self-managed funds. Draft only at the last verified point.
• ATO administrative guidance — how and when Division 296 notices of assessment will be issued. Not covered here.
• Payment mechanics — how an individual may pay the liability. A matter of ATO administration and outside the scope of this legislative status snapshot; check the ATO’s Division 296 guidance for the current position.