Div 296 Tax explained: Under $3M super balance guide

The AFPG team has been fielding many questions lately about the Division 296 tax and what it might mean for our clients. Whenever new legislation appears in the headlines, it’s completely normal for people to feel uncertain about how it could affect their retirement savings.

The good news is that for the majority of Australians, the proposed changes won’t actually have any direct impact. If your super balance is under $3 million, nothing changes for you.

Let’s walk you through how it works and why most people don’t need to be concerned.

The Division 296 tax is a proposed additional tax on superannuation earnings for individuals with very large super balances.

The measure is scheduled to start from 1 July 2026, with the first assessments expected after 30 June 2027. Importantly, it only applies to earnings associated with super balances above certain thresholds. So when people hear about the “new super tax,” the key point we emphasise is: it targets very large balances, not everyday super accounts.

One of the most common questions we’re asked is: “Does the Division 296 tax affect me if my super balance is below $3 million?”

The answer is no.

If your Total Super Balance (TSB) is below $3 million at the assessment date, the Division 296 tax simply does not apply. The proposed tax only applies to the portion of your balance above the threshold. So if there is no excess above $3 million, there is no additional tax.

For most Australians, that means their super continues exactly as it does today.

Another concern clients raise is whether the Division 296 tax changes the existing tax rules on super earnings. Again, the answer is no for balances under $3 million.

Currently:

• Earnings in the accumulation phase are generally taxed at 15%
• Pension phase earnings are typically tax-free

Under the proposed Division 296 framework, these rules remain unchanged for people under the threshold. The additional tax is simply an extra layer aimed at very large super balances.

Under the latest proposal, there are two key thresholds that determine whether the Division 296 tax applies.

• The first is $3 million. Once a person’s super balance exceeds this level, earnings attributable to the amount above the threshold may attract an additional tax.
• A second, higher tier has been proposed at $10 million, with a higher rate applying.

These thresholds help determine whether any additional tax is payable and, again, they apply only to the portion of the balance above those limits.

For most people, this won’t be a concern today. But for some clients who have been contributing for decades or who have strong investment growth, their balance may eventually approach the threshold. This is where forward planning becomes valuable.

Super balances can grow over time through:

• Investment returns
• Employer contributions
• Personal contributions
• Long-term compounding

As your balance approaches $3 million, we need to keep an eye on it and plan ahead.

Another common concern is whether the Division 296 tax changes the tax treatment of retirement income.

If your balance remains under $3 million, there is no direct impact on pension income.

Currently, earnings in the pension phase are generally tax-free, and the proposed Division 296 tax does not introduce a new tax simply because you are drawing an income from your super. So for retirees below the threshold, the existing framework remains intact.

At AFPG, our role is to help clients understand how legislative changes might affect their long-term strategy. When it comes to the Division 296 tax, we model projected super balances based on:

• Current contributions
• Expected investment returns
• Long-term growth expectations

This helps us identify whether a client may approach the threshold in future years, rather than being surprised by it later. Planning early means we can make thoughtful decisions rather than reactive ones. Smart, researched strategies are the key.

For example, If a client wants to manage their exposure to the proposed rules, we can explore a range of strategies together. This might include reviewing:

• Contribution timing
• Concessional and non-concessional contribution caps
• Investment structures
• Withdrawal strategies
• Ensuring all super accounts are included in the Total Super Balance calculation

The goal remains consistent: to keep your retirement strategy aligned with both legislation and your broader financial objectives.

For the vast majority of Australians, the Division 296 tax is something to be aware of, not to worry about. If your super balance is under $3 million, your current tax treatment remains unchanged.

But as with any regulatory change, having the right advice and monitoring your position over time helps ensure your retirement plan stays on track.

AFPG has the expertise to guide you in wealth accumulation and protection. We’ve helped hundreds of Australians, singles, couples and families make informed decisions that enable them to live a lifestyle of their choosing.

Contact us today for experienced, compassionate, and professional financial advice.