Division 296: The $3 Million Super Tax and the Cover Inside Super It Shouldn't Strand

Written by Christopher Hall, AdvDipFP | Authorised Representative, AFSL 526688 | June 2026 · Updated July 2026

Division 296 is a new tax on the earnings of large superannuation balances. It is now law, and it applies from 1 July 2026. It adds an extra 15% to the tax on the share of a person's earnings attributable to a total superannuation balance above $3 million, with a further amount on the share above $10 million. It reaches only a small number of Australians — but for those it does, it is already prompting a rethink of how, and where, wealth is held inside super.

What Division 296 actually does

The measure — formally the better targeted superannuation concessions — became law when the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 received royal assent on 13 March 2026 (Australian Taxation Office, 2026). It applies from the 2026–27 financial year, with the first liability assessed on a person's total superannuation balance at 30 June 2027.

Two thresholds apply. Earnings attributable to a balance above $3 million attract an additional 15% tax; earnings attributable to the part above $10 million attract a further amount, taking the headline rate on that slice to about 40% once the up-to-15% already paid inside the fund is included (Australian Taxation Office, 2026). Both thresholds are indexed to the consumer price index — the $3 million threshold in $150,000 steps and the $10 million threshold in $500,000 steps. Following stakeholder consultation, the Government confirmed the tax is calculated on a realised-earnings basis aligned with existing income tax concepts, so unrealised gains are not taxed (Treasury, 2025) — a change from the measure's earlier design.

The risk a restructure can create

A change pitched at the $3 million mark is prompting some Australians to look at restructuring their super, withdrawing amounts, or rethinking property held in a self-managed fund. Christopher Hall, AdvDipFP, Authorised Representative, AFSL 526688, has completed more than 500 life insurance policy reviews for Australian families — and the pattern he returns to here is not the tax itself, but what can quietly happen to the insurance held inside super when a balance is restructured around it.

Life and total and permanent disability (TPD) cover is often funded through superannuation, which preserves personal cash flow, while income protection is typically held personally — the broader picture of life insurance in super and retirement sets out how that cover is held and what can disturb it. In Christopher Hall's experience across 500+ policy reviews, the majority of policyholders are unaware of how their cover is owned and paid for — whether premiums run through super or are paid personally — so when a fund is wound back, switched, or partly withdrawn, the cover attached to it can lapse or fall away without anyone intending it. He has also found that roughly 1 in 3 clients holding default superannuation cover only have TPD that has dropped to a level most Australians would consider inadequate — which is a reminder to check whether default cover inside super is enough before it is restructured, not after.

A restructure can cut two ways. New cover taken out alongside an old policy can leave a policyholder paying for the same risk twice; cancelling an old policy before new cover is confirmed can leave a gap at exactly the wrong time — and where health has changed, replacement cover may no longer be available on the same terms.

The crossover is sharpest where super holds geared property. After the 2026 ban on new SMSF residential-property borrowing, some trustees are reviewing existing arrangements, and a balance above $3 million concentrated in a single illiquid property carries its own concentration risk. The insurance held inside a self-managed super fund — life and TPD cover — is what can fund a buyout or clear a debt without a forced sale. It is precisely the cover a Division 296-driven restructure should preserve, not unwind.

Income protection premiums held personally may, depending on individual circumstances, be claimable as a personal tax deduction — a point worth confirming with a qualified adviser or accountant when payment structures are reviewed. Policyholders weighing a super restructure in light of Division 296 may wish to have their existing life, TPD and income protection cover reviewed by a qualified life risk insurance adviser before any account is closed or switched, so the protection is mapped before the structure changes.

Weighing a Division 296 restructure: what each option does to cover inside super

For a policyholder whose total superannuation balance is near or above the $3 million threshold, the table below sets out the common responses to Division 296 and what each one does to life, TPD and income protection cover held inside superannuation. It is general information, not a recommendation — the right path depends on individual circumstances and is worth checking with a qualified adviser.

Response to Division 296	Effect on the Division 296 position	Effect on life / TPD / income protection inside super	Mechanism or risk to check first
Withdraw to bring the balance under $3 million	Lowers the total superannuation balance (TSB) the additional 15% is measured against	Cover funded from the account can reduce or lapse as the balance is drawn down	Whether premiums can still be met from the smaller balance
Switch to a retirement-phase pension	The balance still counts towards the TSB, so Division 296 still applies	Many funds cease group or insurance cover on the move to pension phase	The fund's cover-cessation rule, confirmed before the switch
Cancel an old policy and take out new cover	Does not change the Division 296 liability	A gap opens if the old policy ends before the new one is on risk	Underwriting at an older age can load or decline cover — confirm new cover before anything is cancelled
Sell or move property held in an SMSF	Can reduce an illiquid balance sitting above $3 million	Cover the SMSF holds on its members can be affected as the fund is wound back	Division 296 is a personal liability — it can be paid personally or by electing to release the amount from super (60 days to elect, payment due 84 days after the assessment)
Retain the structure and fund the tax from outside super	Liability is assessed on realised earnings above $3 million; negative earnings carry forward to later years	Cover stays in place, undisturbed	No refund applies if the balance later falls below $3 million — paying from outside super avoids drawing down an insured account

Frequently Asked Questions

What is Division 296 and who does it affect?

Division 296 is an additional tax on the earnings of large superannuation balances, legislated in 2026 and applying from 1 July 2026. It affects individuals whose total superannuation balance exceeds $3 million at the end of a financial year — a small share of Australians. Earnings attributable to the balance above $3 million attract an extra 15% tax, with a further amount above $10 million (Australian Taxation Office, 2026).

When does Division 296 start?

It applies from the 2026–27 financial year. The first liability is assessed on a person's total superannuation balance at 30 June 2027, based on that year's earnings (Australian Taxation Office, 2026).

Does Division 296 tax unrealised gains?

No. After consultation, the Government confirmed the tax is calculated on a realised-earnings basis aligned with existing income tax concepts — the earlier proposal to include unrealised gains was dropped (Treasury, 2025). Commentary describing a tax on unrealised gains reflects the superseded design.

Is the $3 million Division 296 threshold indexed?

Yes. Both thresholds are indexed to the consumer price index — the $3 million threshold rises in $150,000 steps and the $10 million threshold in $500,000 steps (Australian Taxation Office, 2026).

What happens to life insurance held inside super if a balance is restructured for Division 296?

Cover funded through superannuation is tied to the account it sits in. If a fund is wound back, switched, or partly withdrawn, the life, TPD or income protection cover attached to it can lapse or reduce. In Christopher Hall's experience across 500+ policy reviews, this is easy to miss because most policyholders are unaware of how their cover is owned. Reviewing existing cover with a qualified adviser before changing the structure is the usual starting point.

Does Division 296 affect a self-managed super fund that holds property?

A member's share of an SMSF counts towards their total superannuation balance, so a large balance held as property can be caught — and because property is illiquid, the tax may need to be funded from other sources. Trustees in this position may wish to seek advice on both the tax and what the ATO expects SMSF trustees to do about insurance, which can prevent a forced sale if a member dies or can no longer work.

How is the Division 296 earnings amount calculated?

Division 296 does not tax the whole balance. It applies to the proportion of a person's earnings attributable to the total superannuation balance above the threshold — an additional 15% on the share above $3 million and an additional 25% on the share above $10 million. Earnings are measured on a realised basis, aligned with existing income tax concepts (Australian Taxation Office, 2026).

What is the Division 296 tax rate on balances above $10 million?

Earnings attributable to the part of a balance above $10 million attract an additional 25%, taking the effective rate on that slice to about 40% once the ordinary 15% tax on super earnings is included. The slice between $3 million and $10 million attracts an additional 15%, or about 30% in total (Australian Taxation Office, 2026).

How is the Division 296 tax paid — from super or personally?

The tax is assessed by the ATO as a personal liability, not a fund liability. Within 60 days of the notice of assessment an individual can elect to release the amount from one or more super funds, pay it personally, or use a combination; payment is generally due 84 days after the notice. Where cover is held inside super, funding the tax from outside super avoids drawing down an insured account (Australian Taxation Office, 2026).

What happens to Division 296 tax if a super balance later falls?

Negative earnings in a year can be carried forward to offset positive Division 296 earnings in future years. There is no refund of tax already paid if a balance later drops below $3 million or if earlier gains reverse — each year's liability is settled on that year's realised earnings (Australian Taxation Office, 2026).

Book a quick review with an adviser

Book a quick review with an adviser now. For Australians weighing a super restructure in response to Division 296, a professional review of the cover held inside super checks that life, TPD and income protection are mapped — and not stranded — before any account is closed or switched.

Find out if you're eligible →

About the Author

Christopher Hall, AdvDipFP, is the principal financial adviser at Arrow Equities and an Authorised Representative under AFSL 526688. He has completed more than 500 life insurance policy reviews for Australian families, with a specialisation in life risk insurance.

Bibliography

#	Source	Type	Date
1	Australian Taxation Office — Better Targeted Super Concessions is now law (royal assent 13 March 2026; applies from 2026–27; first assessment on TSB at 30 June 2027)	Tier 1 — regulatory	2026
2	Australian Taxation Office — Better targeted superannuation concessions, new-legislation guidance ($3m and $10m thresholds; additional 15% and further 10%; CPI indexation in $150,000 / $500,000 steps)	Tier 1 — regulatory	2026
3	Australian Government, the Treasury — Better Targeted Superannuation Concessions changes (announced 13 October 2025; realised-earnings basis confirmed; unrealised gains not taxed; $10m second threshold; indexation)	Tier 1 — institutional	2025
4	Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 (Cth); Superannuation (Building a Stronger and Fairer Super System) Imposition Act 2026 (Cth)	Tier 1 — legislation	2026
5	Christopher Hall, Arrow Equities — proprietary observations from 500+ life insurance policy reviews	CH practitioner	2026

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