From July 1, 2026, Australians with superannuation balances exceeding $3 million will face an additional tax on investment earnings above that threshold. This change has significant implications for Port Lincoln business owners, farmers, and SMSF members—particularly those holding property and business assets in their self-managed funds.
Introduction
A major superannuation tax change is on the horizon that will affect high-balance super accounts across Australia—and the Eyre Peninsula is no exception. For business owners who’ve built substantial wealth in their SMSFs, farming families holding agricultural land within their super funds, and high-income professionals approaching retirement, Division 296 represents a fundamental shift in how large superannuation balances are taxed.
From July 1, 2026, the Australian government will impose an additional tax on superannuation earnings for individuals with total superannuation balances exceeding $3 million. While this affects fewer than 0.5% of Australians—approximately 80,000 people initially—many of those affected are likely to be regional business owners, farmers, and SMSF trustees who have spent decades building retirement capital through their self-managed funds.
This article explains what Division 296 tax is, who will be affected on the Eyre Peninsula, how the tax is calculated, and what strategies Port Lincoln business owners and farmers should consider to manage this additional tax burden. Understanding these changes now—while the legislation is still being finalised—gives you time to plan proactively and protect your retirement capital.
What Is Division 296 Tax?
Division 296 tax, officially known as the “Better Targeted Superannuation Concessions” measure, was introduced by the Australian Treasury to make the superannuation system more sustainable and equitable. The policy targets high-balance superannuation accounts, reducing tax concessions for individuals with total superannuation balances above $3 million.
From July 1, 2026, superannuation earnings on balances above $3 million will be subject to an additional tax. The tax operates on a two-tiered structure:
- Tier 1: Earnings on balances between $3 million and $10 million will be taxed at an additional 15%, bringing the total tax rate to 30% (the existing 15% concessional rate plus the 15% Division 296 charge).
- Tier 2: Earnings on balances above $10 million will be taxed at an additional 25%, resulting in a total tax rate of 40% on that portion of earnings.
Importantly, the tax applies to the proportion of earnings corresponding to the balance above these thresholds, not your entire super balance. If you have $4 million in super, only the earnings attributable to the $1 million above the threshold are subject to the additional tax.
How the Threshold Works
The $3 million threshold applies to your Total Superannuation Balance (TSB) across all super accounts—not per account or per fund. This means if you have an industry super fund with $1.5 million and an SMSF with $2 million, your total balance of $3.5 million puts you above the threshold. According to the Australian Taxation Office, your TSB includes all Australian superannuation interests, including APRA-regulated funds, SMSFs, and defined benefit schemes. Foreign super funds are not included.
Indexation and Future-Proofing
One of the most significant revisions to the original Division 296 proposal is the inclusion of indexation. Both the $3 million and $10 million thresholds will be indexed to the Consumer Price Index, consistent with the Transfer Balance Cap. The $3 million threshold will increase in $150,000 increments, and the $10 million threshold in $500,000 increments. This prevents “bracket creep” and ensures the thresholds maintain their real value over time.
Realised Earnings Only
A critical feature of the revised legislation—released for consultation in December 2025—is that Division 296 will apply only to realised earnings. This includes:
- Dividends and distributions
- Interest income
- Rental income
- Realised capital gains from actual asset sales
This represents a major departure from the original proposal, which would have taxed unrealised gains—including increases in property values even when assets hadn’t been sold. The shift to realised earnings addresses the liquidity concerns that dominated industry feedback, particularly for SMSF members holding illiquid assets like farmland and commercial property.
For more information on SMSF strategies and specialist advice, visit our SMSF services page.
Who Will Be Affected on the Eyre Peninsula?
Treasury estimates that approximately 80,000 Australians—less than 0.5% of super account holders—will initially be affected by Division 296. However, in regional communities like Port Lincoln and across the Eyre Peninsula, the profile of affected individuals may be higher than the national average due to the concentration of business owners, farming families, and SMSF trustees with substantial asset holdings.
Typical Eyre Peninsula Profiles Likely to Be Affected
Division 296 is most likely to impact:
- Business owners who have sold businesses or accumulated substantial super balances over decades of concessional contributions
- Farming families with SMSFs holding agricultural land, farmland, or business real property valued in the millions
- Long-term SMSF investors who have benefited from decades of compounding growth within the tax-advantaged superannuation environment
- High-income professionals—such as medical specialists, senior executives, and consultants—who have consistently maximised their super contributions and are approaching retirement
- Retirees who downsized and made large non-concessional contributions following the sale of the family home or investment properties
- Business owners with commercial property held within their SMSF, particularly if the property has appreciated significantly
The SMSF Factor: Illiquid Assets and Liquidity Challenges
Self-Managed Super Funds are disproportionately represented among high-balance accounts. According to industry data, more than one in three SMSFs hold direct property, with commercial real estate accounting for approximately 12% of total SMSF assets. For many farming families and business owners on the Eyre Peninsula, their SMSF is not just a retirement savings vehicle—it’s an integrated part of their business structure, often holding the land, buildings, or equipment used in their operations.
While the revised Division 296 legislation no longer taxes unrealised gains, SMSF members with illiquid assets still face practical challenges:
- Timing of realisations: When you sell farmland or commercial property, the realised capital gain will contribute to your Division 296 calculation
- Cash flow planning: Ensuring sufficient liquidity to pay the tax when large gains are realised
- Long-term asset holdings: Assets acquired years or decades ago may generate substantial realised gains when eventually sold, all of which will be subject to Division 296 if your TSB exceeds the threshold at that time
How Is the Tax Calculated?
Division 296 uses a proportionate calculation method. The Australian Taxation Office (ATO) will calculate your Division 296 liability and issue a separate personal tax assessment. Here’s how the calculation works:
Step-by-Step Calculation Process
- Determine your Total Superannuation Balance (TSB) at the end of the financial year across all accounts
- Calculate your superannuation earnings for the year (realised income, dividends, interest, capital gains from asset sales, adjusted for contributions and withdrawals)
- Determine the proportion of your TSB exceeding the threshold(s):
- For balances between $3M and $10M: Calculate the percentage above $3M
- For balances above $10M: Calculate the percentage above $10M separately
- Apply the proportional calculation to determine taxable earnings
- Calculate the Division 296 tax by applying the relevant rate (15% or 25%) to the proportional earnings
Worked Example: John’s $4 Million Balance
Let’s consider a practical example for a Port Lincoln business owner:
| Component | Amount |
|---|---|
| Total Superannuation Balance (start of FY2026-27) | $4,000,000 |
| Total Superannuation Balance (end of FY2026-27) | $4,300,000 |
| Realised earnings for the year (dividends, interest, realised capital gains) | $300,000 |
| Threshold | $3,000,000 |
| Amount above threshold | $1,000,000 |
| Proportion above threshold | 25% ($1M / $4M) |
| Taxable earnings | $75,000 (25% of $300K) |
| Additional tax rate | 15% |
| Division 296 tax liability | $11,250 (15% of $75,000) |
John’s total super balance is $4 million, so 25% of his balance is above the $3 million threshold. Therefore, 25% of his earnings ($75,000) are subject to the additional 15% tax, resulting in an $11,250 tax bill.
Worked Example: Sarah’s $12 Million Balance (Two-Tier Calculation)
For individuals with balances exceeding $10 million, the calculation involves both tiers:
| Component | Amount |
|---|---|
| Total Superannuation Balance (end of year) | $12,000,000 |
| Realised earnings for the year | $800,000 |
| Tier 1: $3M to $10M | |
| Amount in Tier 1 | $7,000,000 |
| Proportion of TSB | 58.33% ($7M / $12M) |
| Taxable earnings (Tier 1) | $466,640 (58.33% of $800K) |
| Additional tax (15%) | $70,000 |
| Tier 2: Above $10M | |
| Amount in Tier 2 | $2,000,000 |
| Proportion of TSB | 16.67% ($2M / $12M) |
| Taxable earnings (Tier 2) | $133,360 (16.67% of $800K) |
| Additional tax (25%) | $33,340 |
| Total Division 296 tax liability | $103,340 |
Payment Options
Once the ATO issues your Division 296 assessment, you have 84 days to pay the tax. According to ATO guidance, you can choose to:
- Pay from personal funds (this preserves your super balance for retirement)
- Request a release from your super fund (similar to Division 293 tax arrangements)
- Use a combination of both personal funds and super withdrawals
Paying the tax from personal funds is generally preferable as it maintains your superannuation balance, allowing it to continue growing in the tax-advantaged super environment.
Negative Earnings and Loss Carry-Forward
If your super fund experiences negative realised earnings in a year (e.g., realised capital losses exceed realised gains and income), these losses can be carried forward to offset future Division 296 earnings. However, negative earnings are not refundable—you won’t receive a tax refund for losses.
The Illiquid Asset Problem for SMSF Members
While the revised Division 296 legislation addresses the most severe liquidity concerns by taxing only realised earnings, SMSF members on the Eyre Peninsula—particularly farming families and business owners with property holdings—still face unique challenges.
The Original Concern: Taxing Unrealised Gains
The original Division 296 proposal drew widespread criticism from the SMSF Association and industry bodies because it would have taxed unrealised gains. Under that model, if your SMSF owned farmland that increased in value by $500,000 over a year—even though it hadn’t been sold and generated no cash income—that increase would have been treated as “earnings” subject to Division 296 tax.
This created an impossible situation: pay tax on gains you haven’t received, potentially requiring you to sell the asset just to pay the tax bill. SMSF Association CEO Peter Burgess described this as “a tax on market movements and changes in asset values, not income,” setting an “alarming precedent.”
The Revised Approach: Realised Earnings Only
The shift to taxing only realised earnings removes the immediate liquidity crisis. However, challenges remain:
Scenario: Eyre Peninsula Farming Family SMSF
Consider a farming family whose SMSF owns 200 hectares of agricultural land near Port Lincoln, purchased 15 years ago for $1.5 million and now valued at $3.5 million. Under the revised Division 296:
- While holding the land: The $2 million unrealised gain is not taxed, even though the land has increased significantly in value
- When the land is sold: The entire realised capital gain (subject to any CGT discount) becomes part of the earnings calculation for Division 296 purposes in the year of sale
- Tax planning challenge: The family needs to plan for:
- The lump-sum nature of the realised gain (potentially triggering a substantial Division 296 liability in a single year)
- Ensuring sufficient liquidity within the SMSF to pay the tax without financial hardship
- Strategic timing of the sale to manage tax exposure
Potential Responses to Illiquid Asset Challenges
SMSF trustees with illiquid assets should consider:
- Maintaining liquidity: Hold a reasonable proportion of liquid assets (cash, term deposits, listed securities) to meet tax obligations when illiquid assets are eventually sold
- Strategic sale timing: Plan asset sales across multiple years to manage the proportional calculation and avoid concentrated tax hits
- Pension phase planning: If eligible, move assets to pension phase where investment earnings are tax-free (though this doesn’t eliminate Division 296, which is an additional personal tax)
- Spouse equalisation: Split super balances with your spouse to keep each partner below the $3 million threshold where possible
- Professional valuation: Ensure accurate, defensible valuations for SMSF assets, as these affect your TSB calculation
Importantly, restructuring to move assets out of super typically triggers Capital Gains Tax and other tax consequences that often outweigh the Division 296 tax burden. Any restructuring must be carefully modelled.
Strategies to Manage or Minimise Division 296 Tax
For Port Lincoln business owners, farmers, and SMSF members approaching or exceeding the $3 million threshold, proactive planning is essential. Here are the key strategies to consider:
Strategy 1: Keep Super Balance Below $3 Million Through Strategic Withdrawals
Who it suits: Retirees already in pension phase with flexibility to draw down super
How it works: If you’re close to the $3 million threshold, you can make strategic withdrawals to stay below the cap. This works best if you have other investment structures outside super (e.g., family trust, investment properties) where you can hold wealth.
Pros: Avoids Division 296 entirely; provides access to capital for other purposes
Cons: Removes assets from the tax-advantaged super environment; may trigger personal tax obligations on income from assets now held outside super; limits compounding growth
Strategy 2: Spouse Contribution Splitting
Who it suits: Couples where one partner has a high balance and the other is below $3 million
How it works: Use contribution splitting strategies to direct concessional contributions to the partner with the lower balance. This can help equalise balances and keep both partners below the $3 million threshold.
Pros: Utilises both partners’ thresholds ($6 million combined); maintains wealth in super environment; improves estate planning flexibility
Cons: Subject to contribution caps; may require ongoing contributions to rebalance; doesn’t help single individuals or those already past the threshold
Strategy 3: Recontribute Earnings as Non-Concessional Contributions
Who it suits: Individuals under 75 with capacity to make non-concessional contributions
How it works: Withdraw taxed earnings from super and recontribute them as non-concessional contributions to your spouse’s account (subject to caps and age restrictions).
Pros: Redistributes balances between spouses; maintains wealth in super
Cons: Limited by $120,000 annual non-concessional cap (or $360,000 bring-forward rule); subject to Total Superannuation Balance test; complex to implement
Strategy 4: Strategic Timing of Asset Realisations
Who it suits: SMSF members with control over when they sell assets (property, shares, business assets)
How it works: Plan the timing of asset sales to manage realised gains across multiple years or defer sales to years when your TSB is lower.
Pros: Spreads Division 296 liability over time; provides control over tax timing
Cons: May conflict with optimal investment timing; doesn’t eliminate the tax, just defers or spreads it; requires detailed modelling
Strategy 5: Increase Liquidity in SMSF
Who it suits: SMSF trustees holding predominantly illiquid assets
How it works: Gradually rebalance your SMSF portfolio to include more liquid investments (ETFs, listed shares, term deposits) alongside illiquid holdings.
Pros: Ensures cash available to pay Division 296 tax without forced asset sales; improves overall portfolio diversification; provides flexibility
Cons: May require selling some illiquid assets; reduces concentration in preferred assets; doesn’t reduce the tax, just makes it easier to pay
Strategy 6: Review Whether Super Remains the Best Structure
Who it suits: High-net-worth individuals with balances significantly above $10 million
How it works: Model the after-tax returns of holding assets inside super (taxed at up to 40% on earnings above $10M) versus outside super in alternative structures (family trusts, investment companies).
Pros: May identify more tax-effective structures for very large balances
Cons: Exiting super triggers CGT and loss of future tax concessions; complex restructuring required; significant upfront costs; not suitable for most people under $10 million
Strategy Comparison Table
| Strategy | Best Suited For | Key Benefit | Main Limitation |
|---|---|---|---|
| Strategic withdrawals | Retirees in pension phase | Avoids Division 296 entirely | Loses super tax advantages |
| Spouse splitting | Couples with unequal balances | Uses both thresholds ($6M combined) | Subject to contribution caps |
| Recontribution | Under-75s with flexibility | Rebalances between spouses | Limited by NCC caps |
| Timing asset sales | SMSF members with control | Spreads tax over multiple years | Requires detailed planning |
| Increase liquidity | SMSF with illiquid assets | Easier to pay tax bills | Doesn’t reduce tax amount |
| Review super structure | Very high balances (>$10M) | May find better alternatives | Complex and costly to implement |
Important: Every situation is different. These strategies involve complex interactions with contribution caps, CGT, pension rules, and estate planning. Specialist SMSF advice is essential before implementing any of these approaches.
Why Specialist SMSF Advice Matters
Division 296 tax doesn’t operate in isolation. It interacts with SMSF compliance obligations, pension phase rules, contribution caps, Capital Gains Tax, transfer balance caps, and estate planning structures. Making the wrong decision now could have consequences that ripple through your retirement for decades.
This is where specialist SMSF advice becomes invaluable. Proactive planning—done before Division 296 commences on July 1, 2026—can potentially save tens of thousands of dollars in tax over your retirement.
At Eyre Financial Services, we understand the unique challenges facing Port Lincoln business owners and farming families. Our team holds SMSF Specialist Advisor (SSA) credentials and CPA qualifications, with deep knowledge in regional business structures, illiquid assets, and the specific needs of Eyre Peninsula clients. Principal Naomi Durdin is not just a CPA and SMSF specialist—she’s also a farm owner, bringing first-hand understanding of the agricultural asset and succession planning challenges facing farming families.
Whether you’re concerned about how Division 296 will affect your SMSF, need to model different scenarios, or want to explore strategies to manage this additional tax, specialist advice tailored to your circumstances is essential.
Conclusion
Division 296 tax represents a significant change for Australians with superannuation balances exceeding $3 million. Starting July 1, 2026, affected individuals will face an additional 15% tax on earnings above the $3 million threshold, rising to 25% for balances above $10 million. While the revised legislation’s focus on realised earnings addresses the most severe liquidity concerns, the tax still poses meaningful challenges for Port Lincoln business owners, farming families, and SMSF members—particularly those holding illiquid assets like farmland and commercial property.
The good news is that proactive planning can help you minimise the impact of Division 296 tax and preserve more of your retirement capital. With the legislation still being finalised through consultation (as of December 2025), now is the time to review your superannuation structure, model your future tax position, and explore strategies tailored to your circumstances.
Division 296 is complex, and the rules continue to evolve. Staying informed, seeking specialist advice, and planning ahead will be critical to navigating this new tax landscape successfully.
Frequently Asked Questions
Q1: Does the $3 million threshold apply per person or per super fund?
The $3 million threshold applies per person across all their superannuation accounts, not per fund. If you have multiple super accounts—say, an industry fund and an SMSF—the ATO will add up all your balances to determine your Total Superannuation Balance (TSB). If you’re a member of an SMSF with your spouse, each member’s balance is assessed individually. So, a couple could have up to $6 million in combined super before either individual exceeds the $3 million threshold.
Q2: What happens if my super balance goes above $3 million one year and drops below it the next year?
Division 296 tax is calculated annually based on your Total Superannuation Balance at the end of each financial year. If your balance exceeds $3 million in one year, you’ll pay the additional tax on the proportion of earnings above the threshold for that year only. If your balance falls below $3 million the following year (due to market losses or withdrawals), you won’t pay Division 296 tax in that year. This creates an opportunity for strategic management: drawing down your super in high-balance years to stay below the threshold in future years can help you avoid the tax.
Q3: Can I avoid Division 296 tax by moving assets out of my SMSF into a family trust or company?
While it’s technically possible to move assets out of super into other structures, this strategy typically triggers significant tax consequences. Withdrawing assets from super (whether through in-specie transfer or cash sale) may trigger Capital Gains Tax (CGT), income tax on withdrawals (if you’re under 60), and the loss of the tax-free earnings environment that super provides. Additionally, assets held outside super are subject to higher tax rates on income and capital gains—potentially up to 47% for individuals on the top marginal rate, compared to 30% or 40% under Division 296. For most people, the cost of exiting super exceeds the Division 296 tax burden. Any restructuring strategy must be carefully modelled by a qualified advisor—Eyre Financial Services can help assess whether this makes sense for your specific situation.
