Division 296 tax in Australia is a proposed reform that would introduce an additional 15% tax on superannuation earnings attributable to balances over $3 million.
Status (as at 15 March 2026): According to the Federal Register of Legislation this measure has not yet passed into law. However, this article explains the proposal, the likely mechanics, and the sensible planning steps for expats if it becomes law. Before acting, confirm the current status on legislation.gov.au.
Update log:
- 15 Mar 2026: Status wording corrected, SMSF expat residency risk clarified, spouse splitting references added.
Effective from 1 July 2025, this $3 million super tax applies to the earnings on the proportion of an individual’s Total Superannuation Balance (TSB) that exceeds the $3 million threshold. It’s a fundamental change to how high-balance super accounts are taxed, and it introduces the concept of taxing unrealised gains, a significant departure from how superannuation has worked until now.
This guide breaks down how Division 296 works, who it applies to, and the specific actions non-resident Australians should be considering before 30 June 2026.
What We Know (and What We Don’t) Yet
- Known: The policy intent is to apply an additional 15% tax to earnings attributable to the portion of your Total Superannuation Balance above $3 million, assessed per individual (not per household).
- Known: The design discussion has included taxing earnings calculated using changes in account balances, which can capture unrealised gains.
- Unknown until enacted: The final drafting, start date, any transitional rules, and how the ATO will administer edge cases (especially defined benefit interests and complex SMSF situations).
If you’re an expat with a large super balance, you don’t need perfect certainty to prepare. You need to understand what drives the calculation and which decisions are reversible (planning) versus irreversible (structural changes made in a rush).
What Is Division 296 Tax? The $3 Million Super Tax Explained
Division 296 is a proposed set of rules that would insert a new Division 296 into the Income Tax Assessment Act 1997 and impose an additional 15% tax on investment earnings for individuals whose Total Superannuation Balance exceeds $3 million at the end of a financial year. The proposal has been associated with the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026, but you should confirm the current legislative status before acting.
This is not a 15% tax on your entire balance. It is a tax on a proportion of the year’s earnings, calculated based on how much of your balance sits above the $3 million threshold.
The tax is levied on the individual, not the super fund. The ATO will issue a separate Division 296 tax assessment directly to you. You can then choose to pay this liability from your personal funds or elect to have the amount released from your superannuation account.
The $3 million threshold is not indexed. It will not rise with inflation, which means more Australians will be caught by it over time as balances grow even if their real wealth hasn’t changed.
How the Tax on High Super Balances Is Calculated
The calculation is based on a concept of “taxable superannuation earnings” and involves three steps.
Step 1: Calculate your earnings for the year. The ATO calculates the change in your TSB over the financial year, adjusted for contributions and withdrawals:
- Earnings = (TSB at end of year + Withdrawals) – (TSB at start of year + Contributions)
Step 2: Determine the proportion over $3 million.
- Proportion = (TSB at end of year – $3 million) / TSB at end of year
Step 3: Apply the tax rate.
- Division 296 Tax = Earnings x Proportion x 15%
Worked example: TSB of $4 million, earnings of $400,000 for the year.
- Proportion = ($4m – $3m) / $4m = 25%
- Taxable earnings = $400,000 x 25% = $100,000
- Division 296 tax = $100,000 x 15% = $15,000
For the definitive legislative detail, refer to the ATO’s guidance on better-targeted superannuation concessions.
The Impact of Taxing Unrealised Gains
The decision to tax unrealised gains has far-reaching implications, especially for SMSFs holding illiquid assets like property or private equity.
A fund’s TSB increases with the market value of its assets. If an SMSF holds a commercial property that increases in value by $500,000, that growth is part of the earnings calculation for Division 296, even if the property hasn’t been sold. This can create a tax liability without generating the cash flow to pay it.
There is a partial offset: if your earnings are negative in a future year (because asset values fall), the negative amount can be carried forward to reduce Division 296 earnings in subsequent years. But the offset is carried forward, not refunded. You don’t get money back for a year of poor performance.
Who Is Affected?
Division 296 applies to individuals with a total superannuation balance exceeding $3 million at 30 June of the relevant income year. The ATO estimates approximately 80,000 Australians (roughly 0.5% of superannuation account holders) are currently above the threshold.
Your total superannuation balance includes all of your interests across all super funds: accumulation accounts, pension accounts, and defined benefit interests. Balances across multiple funds are aggregated for the $3 million test.
Defined benefit fund members are included. If you’re a member of a defined benefit scheme, common among expats who worked in mining, government, or large corporates, your defined benefit interest is included in your TSB using a standardised calculation (ITAA 1997 s 960-285).
Division 296 applies regardless of your Australian tax residency status. If you’re a non-resident for income tax purposes and your Australian super balance exceeds $3 million, you are caught. Your residency status does not exempt you.
The Expat Dimension: How Division 296 Hits Differently Overseas
The domestic commentary on Division 296 has focused almost entirely on retirees and high-income earners living in Australia. But the legislation has distinct implications for expats that deserve separate attention.
You may not be able to “contribute your way out of it”. Being a non-resident does not automatically stop you making super contributions, but many expats cannot access the usual concessional contribution strategies (employer SG, salary sacrifice, or personal deductible contributions) because they have usually have no Australian employment income and typically have only minimal Australian assessable income to claim a deduction against. Some funds also have practical limits (or extra admin) for members living overseas.
In any event, extra contributions usually increase your Total Superannuation Balance, which can worsen Division 296 exposure. So while contributions can still be part of a broader plan, they are not a simple “fix” once you are already above $3 million.
SMSFs are often a trap for expats, and Division 296 is not the main problem. If you are living overseas and you remain a trustee (or director of a corporate trustee), you need to be very careful about the SMSF residency rules, including where the fund’s central management and control is exercised, and whether the fund has active members. A breach can cause the fund to become non-complying, which is catastrophic.
Where an SMSF is structured and administered so it remains complying while a member is overseas, Division 296 can add another layer of complexity (annual valuation discipline, reporting, and modelling). The key point is: do not assume you can simply “run your SMSF from overseas” and worry about Division 296 later. Get the residency position nailed first.
Defined benefit interests are harder to manage. Unlike an accumulation account where you can withdraw or restructure, defined benefit entitlements are largely fixed. If the notional value of your defined benefit interest pushes your TSB above $3 million, your options for bringing it below the threshold are constrained.
Your foreign pension is separate but the interaction matters. Division 296 does not apply to foreign pension schemes. Your UK workplace pension, US 401(k), or Singapore CPF balance is not included in your Australian TSB. But if you’re considering withdrawing from Australian super or consolidating retirement savings across countries, the Division 296 implications need to be modelled carefully. A withdrawal from super reduces your balance, but it also affects the earnings calculation and may trigger other tax consequences depending on your Australian tax residency status and the preservation rules that apply to your benefits.
What to Do Now (Before 30 June 2026)
The first Division 296 assessment will be based on your total superannuation balance at 30 June 2026. That gives you roughly fifteen weeks from the date of publication to review your position and act. This is a tight window for the decisions involved, so starting now matters.
Understand your current balance. Request current statements from all funds, including any old employer funds you may have forgotten about. Your total superannuation balance is the aggregate across all of them. If you don’t know the full picture, you can’t plan around the threshold.
Model the Division 296 liability. Estimate your likely earnings for 2025-26 and calculate the proportion and tax using the formula above. If you’re an SMSF trustee, this means getting current asset valuations, particularly for property and unlisted investments. The earlier you run the numbers, the more time you have to respond.
Consider whether withdrawals make sense. If your balance is close to the $3 million threshold and you have access to preserved benefits (because you’ve met a condition of release, reaching preservation age and retiring, or turning 65), withdrawing enough to bring your balance below $3 million before 30 June eliminates the Division 296 liability for that year. But withdrawals have their own tax consequences, and the decision should never be made in isolation.
Review contribution splitting with your spouse (if relevant). Some funds allow contribution splitting (SIS Regs 6.34 and 6.35) where concessional contributions are allocated to a spouse’s account, subject to eligibility and preservation age rules. Because Division 296 is assessed per individual, splitting can sometimes help manage household outcomes over time where one partner is above $3 million and the other is well below.
Two important constraints: (1) contribution splitting is generally done after the end of the financial year (you cannot undo a 30 June balance at the last minute), and (2) it only applies to certain types of contributions and depends on your fund’s processes. Residency is usually not the gating item, but fund rules and timing matter.
References: ATO guidance and form: Superannuation contributions splitting (NAT 15237). Primary law: Superannuation Industry (Supervision) Regulations 1994 (see regs 6.34 and 6.35).
Reassess your SMSF investment strategy. The unrealised gains component of the earnings calculation makes asset allocation a live consideration. Assets with high growth volatility will create larger swings in your Division 296 liability from year to year. The tax cost of holding growth assets inside super above the $3 million threshold is now higher than it was.
Get your records in order. Keep monthly superannuation statements, SMSF asset valuations, and records of all contributions and withdrawals. You’ll need these for both the Division 296 assessment and your broader tax position. See also our EOFY action plan for Australian expats.
Key Deadlines and Transition Rules
First assessment year: 2025-26. The legislation takes effect from 1 July 2025. The income year ending 30 June 2026 is the first year in which Division 296 tax will be assessed.
When will the ATO collect? Assessments for 2025-26 are expected from around August 2026. Payment is due within 28 days of the notice of assessment.
Payment options. Pay personally, or elect to have the liability released from your super fund. If you elect to pay from the fund, the release reduces your super balance, also reducing your balance for the following year’s Division 296 calculation.
The proposed backdating issue. The policy proposal has been that Division 296 would apply from 1 July 2025, even though the legislation was introduced later. That creates a “backdating” problem in practice. If the measure becomes law, what you can still influence is your balance position at 30 June (and your structure going forward), which is why early modelling matters.
The threshold is not indexed. Over time, fiscal drag will bring more people into the Division 296 net. If you’re currently below but within range, model when you might cross the threshold.
Get Advice Before the End of the Financial Year
Division 296 is one of the most significant changes to superannuation taxation in a generation. For expats, the interaction with non-residency rules, SMSF compliance, and limited contribution options makes it more complex than the headline “15% on earnings above $3 million” suggests.
If your super balance is above or approaching $3 million, the next fifteen weeks are your planning window. If residency cessation is part of your broader planning, our guide on how to cease Australian tax residency explains the process and the tests the ATO applies.
These aren’t decisions to make based on a headline or a social media thread. They require modelling your specific numbers, understanding your residency and contribution status, and weighing Division 296 against the broader tax and retirement picture.
Division 296 review consultations open now
We’re running Division 296 review consultations for Australian expats between now and 30 June. If your super balance is in the range, a structured review of your position, your balance, your fund structure, your residency status, and your options, is the single most valuable thing you can do before the first assessment year closes.
This article is current as at 13 March 2026. Legislative status can change quickly. Before taking action, confirm the current position on the Federal Register of Legislation and/or Parliament’s bill tracker, and obtain advice for your specific circumstances.
