After announcing substantial changes in October 2025, the Federal Government's Division 296 Tax measure on superannuation balances over $3 million became law on 13 March 2026 – with a confirmed start date of 01 July 2026.

In passing this legislation, it seems the Government listened to criticism of the two most controversial features of their original Division 296 Tax proposal:

1. the taxation of unrealised gains through a Total Superannuation Balance (TSB) change methodology; and 
2. the lack of indexation of the threshold that would potentially subject more superannuation account holders to the additional tax over time.

Both aspects of the legislation were amended in the revamp and the final Bill.

Let's unpack the details in Division 296 Tax…

Delayed start date

Originally planned for a retrospective introduction on 01 July 2025, the commencement date has been deferred to 01 July 2026.

What we didn't like the first time

In the first proposal, the additional tax was based on changes to your Total Super Balance, which could include unrealised gains (increase in asset values that haven't been sold or received as income) – equating to tax on 'paper profits'.

Also, the $3 million threshold for the additional tax was not intended to be indexed, meaning more people would be impacted over time as super balances grow.

The approved rules

A two- tiered threshold for higher super balances:

• an additional 15% tax on the proportion of earnings relating to balances over $3 million and up to $10 million (effectively 30% on earnings for this component); and
• an additional 25% tax on the proportion of earnings relating to balances over $10 million (effectively 40% on earnings for this component).

Indexation will apply: both thresholds will be indexed to maintain alignment with the Transfer Balance Cap (TBC) and inflation (CPI).

Tax will only apply to realised earnings: that is, actual income your super fund has received, such as dividends, interest, rent and realised capital gains from the sale of assets.

Why the revised Division 296 is better

This finally approved approach is considered fairer, as impacted super fund members will only be taxed on income their fund has actually earned – not on paper profits that may never be realised.

It also addresses the problem – through indexation – of more people becoming subject to the tax over time due to ‘bracket creep’.

What's next

The first 'trigger' date for the impact of Division 296 Tax is 30 June 2027 (focusing on an individual's Total Super Balance that exceeds $3 million or $10 million).

If you have any questions or concerns about the new Division 296 Tax on your superannuation savings, feel free to contact us at The Peak Partnership.