The new tax on super balances above $3 million, explained

Parliament passed the Government's extra tax on large super balances in March 2026, and it applies from 1 July 2026. It is known as Division 296, after the part of the tax law that contains it. The tax falls on a share of the super earnings of people whose total super balance is above $3 million.

The law passed in March 2026 with a revised design

The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 was introduced on 11 February 2026, alongside a companion bill that sets the tax rates. The House of Representatives passed both on 5 March 2026, and the Senate passed them without amendment on 10 March 2026. Both received Royal Assent, the formal step that makes a bill law, on 13 March 2026.

The 2023 proposal would have taxed unrealised gains, meaning rises in the value of assets not yet sold, and had a single $3 million threshold that was not indexed. The final law taxes realised earnings only, adds a second threshold of $10 million and indexes both to inflation.

The extra tax applies to a share of realised earnings

Your total super balance, the combined value of all your super accounts, decides what share of your super earnings is affected.

• Thresholds. For the year to 30 June 2027 they are $3 million and $10 million. Both are indexed to inflation in steps of $150,000 and $500,000.
• Earnings. Most funds start from their taxable income, which reflects realised earnings such as interest, dividends, rent and gains on assets sold. Contributions are left out and pension account earnings are counted.
• Rates. The share of earnings matching the part of your balance above $3 million attracts an extra 15 per cent. The share matching the part above $10 million attracts a further 10 per cent.
• Timing. For the first year, only your balance on 30 June 2027 counts. After that, the test uses the higher of your balance at the start and at the end of each year.

In the accumulation phase, while super is still building, fund earnings are generally taxed at 15 per cent. With the extra tax, earnings linked to the part of a balance between $3 million and $10 million are taxed at 30 per cent in total. Earnings linked to the part above $10 million are taxed at 40 per cent. In the retirement phase, where super pays a pension and earnings are generally untaxed, the totals are 15 and 25 per cent.

A simple example shows how the numbers work

This example is illustrative only. Take someone whose total super balance is $5 million on 30 June 2027, and whose funds report $250,000 of earnings for the year. The part of the balance above $3 million is $2 million, or 40 per cent of the total. So 40 per cent of the earnings, $100,000, attracts the extra 15 per cent. That comes to $15,000 of Division 296 tax, on top of the tax the fund already pays on its earnings. The ATO's own worked examples include one for a balance above $10 million.

Few Australians are affected, and the ATO assesses each person

When the law passed, the Treasurer said it would affect less than 0.5 per cent of Australians in its first year. Most balances are far smaller: ATO statistics put the median super balance at $63,339 in the year to 30 June 2024.

The ATO works out the tax from what each fund reports and sends the individual a notice of assessment, the formal statement of tax owed. It expects to begin issuing the first notices, for the year to 30 June 2027, in the first half of 2028. Payment is generally due 84 days after the notice. You can pay it yourself or, within 60 days of the notice, elect to have it released from one or more of your super funds. If you do neither, the ATO may ask a fund to release the amount.

Defined benefit schemes, which pay a benefit set by a formula, measure earnings differently. Tax on a defined benefit interest not yet paid out is generally deferred until a benefit is paid, with interest added. For this tax, a self managed super fund (SMSF) can choose to reset the cost base of its assets, the figure used to work out a capital gain, to market value at 30 June 2026. This generally leaves out gains made before that date. The choice covers all the assets it held at that date, cannot be reversed and must be made by the due date of the fund's return for the year to 30 June 2027.

The rules are detailed, so advice before acting is worthwhile

The ATO said in July 2026 that it was still preparing guidance for funds on calculating earnings. Decisions such as withdrawing money from super have consequences of their own. Even with the extra tax, earnings in super are taxed at less than the top personal income tax rate. SMSFs that hold property or other assets that are hard to sell may need to plan for the cash to pay the tax. Accounting firms recommend getting advice before making changes, and the ATO suggests discussing the new rules with a tax agent.

Your adviser can consider your super alongside investments held outside it, such as term deposits, bonds, managed funds, shares and exchange traded funds.

If your super is close to or above $3 million, talk to your adviser about what the new tax means for you and your retirement plans before making any decisions.

This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not a recommendation to buy, sell or hold any investment. Figures are as published on the dates given. Past performance is not a reliable indicator of future performance. Read the full risk warning