3 million super tax explained
What’s actually changing and who it affects
Known to some as the ‘$3 million super tax’, new legislation effective from 1 July 2026 will add an extra 15% tax on earnings attributable to the part of a member’s Total Super Balance (TSB) above
$3 million, plus a further 10% (totalling 25% extra) on the portion attributable to their Total Super Balance (TSB) over $10 million.
This tax doesn’t replace the 15% tax already applied inside super – it sits on top and is assessed to the individual but those affected will have the choice to pay the tax personally or elect for it to be released and paid out of their super.
Most Australians are unaffected, although a relatively small number of higher balance members may be taxed under the legislation.
When does it start and where does the legislation stand today?
The new legislation was passed into law in March 2026 and takes effect from 1 July 2026.
The first assessments under the new rules will occur in the 2027–28 financial year.
Accompanying regulations were also registered in late June and provide further detail on the application of the rules to ensure that all superannuation interests are properly assessed for the purposes of the tax.
Notably, the regulations clarify the following:
- How Division 296 earnings are allocated between members.
- How earnings are calculated for defined benefit pensions.
- Which amounts are excluded from Division 296 (for example, certain judicial pensions, foreign super interests and other specified interests).
What the $3 million super tax (Div 296) does
The key change: extra tax above the thresholds
An extra 15% tax applies to the proportion of earnings attributable to the part of a member’s TSB above $3 million and an extra 25% tax to the proportion of earnings over $10 million. It effectively brings the tax on super earnings above these amounts to 30% and 40% respectively1.
For example, if your TSB is $4 million and you had total superannuation earnings of $200,000, only 25% or $50,000 of your earnings for the year would be subject to the additional 15% Division 296 tax, not the whole $200,000.
How earnings are calculated: based on realised gains
The tax will be calculated on realised earnings including realised capital gain – that is, the fund’s actual taxable income, adjusted for taxable contributions and any exempt income from the fund’s pension assets. This approach aligns with existing income tax concepts and avoids taxing unrealised gains.
What the TSB measure includes
TSB includes accumulation balances, retirement phase balances such as the value of account based pensions and defined benefit pensions (including the value of any death benefit income stream they are receiving), rollovers in transit and certain outstanding Limited Recourse Borrowing Arrangement amounts which are only relevant for self managed super funds. It is measured at 30 June each year.
Whether and how much you may be affected by the new rules will depend on a number of things but the key determining factor is your TSB at the beginning and at the end of a financial year, whichever is higher. A transitional rule in place for 2026-27 means that only your TSB at the end of 2027 will count, which gives you time to decide the best course of action if your TSB is approaching $3 million.
The 33% Capital Gains Tax discount in super still applies
Even if your TSB exceeds the $3 million threshold, the effective tax rate on earnings attributable to the portion of your TSB that exceeds $3 million (but is less than $10 million) may only be up to a maximum of between 20% and 30%.
This would depend on how much of your earnings are made up of capital gains and would also take into account the 33% CGT discount on assets held for more than a year within super.
This may be less than your marginal tax rate or what you could end up paying if you were to move your money outside super.
Who will be affected
| Balance band | Likely effect |
| Under $3 million | No immediate impact – monitor whether you are close or whether a couple’s combined balances could exceed $3 million if one passes away and the other inherits a death benefit |
| Around the threshold | Watch contributions; model whether growth will push you over |
| Well above the threshold | Review contributions, estate plan and insurance with an adviser |
Under $3 million
No Div 296 effect at all. The standard 15% accumulation tax and 0% pension phase tax (within the Transfer Balance Cap) continue to apply.
Around the threshold
If your total super balance is trending toward $3 million through returns alone, Division 296 tax may apply in a future year.
Well above the threshold
For balances between $3 million and $10 million a maximum tax rate of between 20% and 30% may still compare very favourably with investing outside super and paying tax at marginal rates of up to 45%. For balances over $10 million you should seek specialist tax advice.
How the tax would be calculated – a worked example
| Item | Value |
| TSB on 30 June (start)2 | $3,500,000 |
| TSB on 30 June (end) | $3,750,000 |
| Net contributions | $0 |
| Net withdrawals | $0 |
| Calculated earnings | $250,000 |
| Proportion above $3m at year-end2 | ($3.75m − $3m) / $3.75m = 20% |
| Earnings attributable to balance above $3m | $250,000 × 20% = $50,000 |
| Additional tax at 15% | $7,500 |
2 To determine the taxable percentage of your earnings attributable to balances over $3 million, the higher of your TSB at the beginning or end of the financial year will be used. However, for the first year after this measure starts, a transitional rule will apply in 2026-27 so that only your TSB at the end of the year will count.
Unrealised gains: are they taxed?
No. The government has moved away from an earlier plan to calculate the tax based on changes in a member’s total super balance over a year.
The new tax will be calculated on realised earnings or the fund’s actual taxable income, adjusted for taxable contributions and any exempt income from the fund’s pension assets. Realised earnings will not include unrealised capital gains.
What the change would mean for estate planning and insurance
A meaningful change to the tax profile on the margin above $3 million may affect decisions around binding death benefit nominations, how much life insurance to hold through super and whether some assets belong outside super.
Don’t change anything until you understand how you may be affected. Consider discussing these decisions with a financial adviser.
¹ Super is generally taxed at 15%. Higher income earners may incur an additional 15% tax, known as Division 293, on their contributions if their combined income and concessional super contributions (including employer Superannuation Guarantee contributions) exceed $250,000 in a financial year. The $3 million super tax, or Division 296, is separate, and applies to members with high balance super accumulation or super pension accounts, comprising an extra 15% tax on the proportion of earnings attributable to the part of a member’s TSB above $3 million. An additional 10% applies to the portion of a member’s TSB over $10 million.
2 Whether and how much you may be affected by the new rules will depend on a number of things. This will generally include your TSB at the beginning and at the end of a financial year, whichever is higher. A transitional rule in place for 2026-27 means that only your TSB at the end of the year will count.
3 Other factors, such as the 33% CGT discount on long held earnings in super, may apply to reduce tax payable under the Division 296 legislation.
Source: Colonial First State
