If your superannuation balance is approaching or already exceeds $3 million, you have likely heard about the incoming Division 296 tax. What you may be less certain about is exactly what it will cost you, and whether contribution splitting with your spouse is a legitimate strategy to reduce the impact.
This post gives you a plain-language breakdown of how the tax is calculated, how spouse contribution splitting works, and whether it makes sense for your situation as a couple. The goal is to give you enough clarity to evaluate your options and take the next step with confidence.
Concerned about how Division 296 affects your superannuation? Speak with our independent advisory team in North Lakes or Birtinya for a personalised review.
What is Division 296 and How Does it Work?
Division 296 is a new tax measure, passed by Parliament on 10 March 2026, that applies an additional tax on the superannuation earnings of individuals whose total super balance (TSB) exceeds $3 million. For balances between $3 million and $10 million, the additional tax rate is 15%, bringing the effective rate on those earnings to 30%. For balances exceeding $10 million, the additional rate is 25%, bringing the effective rate to 40%.
Critically, the tax does not apply to all your earnings once you cross the threshold. It applies to the proportion of realised earnings attributable to the portion of your balance above $3 million (and, separately, to the portion above $10 million at a higher rate). Here is how the proportional calculation works in practice.
If your total balance is $4 million, then $1 million of that balance sits above the $3 million threshold. That represents 25% of your total balance. The additional 15% tax applies to 25% of your fund’s total realised earnings for the year.
Worked example:
A member with a $4 million balance and $320,000 in realised earnings for the year:
- Proportion above $3 million: $1 million of $4 million = 25%
- Realised earnings subject to the additional 15% tax: $80,000
- Additional tax: $12,000 per year
For a member with a $12 million balance and $600,000 in realised earnings:
- Proportion between $3m and $10m: $7m of $12m = 58.33%
- Proportion above $10m: $2m of $12m = 16.67%
- Additional 15% tax on 58.33% of $600,000 = $52,500
- Additional 25% tax on 16.67% of $600,000 = $25,005
- Total additional tax: $77,505
It is worth noting that under the passed legislation, the tax applies to realised earnings only, such as dividends, interest, rent and realised capital gains. Unrealised gains, including paper increases in value on property or unlisted assets, are not subject to Division 296. This is a significant change from the original 2023 proposal, which would have taxed unrealised gains.
For SMSF members, the legislation includes a transitional CGT cost-base reset. SMSFs can elect to adjust the cost base of assets held on 30 June 2026 to their market value on that date, so that gains accrued before commencement are not taxed under Division 296. This election must be made by the due date for lodging the 2026/27 income tax return and, once made, cannot be revoked. It applies to all assets held directly by the fund. Members can also elect to pay the tax personally rather than from the fund, which preserves the fund’s assets.
What is Spouse Contribution Splitting?
Spouse contribution splitting is a legitimate mechanism that allows you to transfer a portion of your concessional superannuation contributions to your spouse’s super account. It is one of the most practical forms of spouse super contribution available under Australian law. It is explicitly permitted under Australian superannuation law and has been available to fund members for many years.
The mechanics are straightforward. After you have made concessional contributions to your own fund during the financial year, you can apply to your fund to split up to 85% of those contributions into your spouse’s account. The maximum you can split in any given year is limited by the concessional contributions cap, which is currently $30,000 per year, making the practical maximum split approximately $25,500 annually.
Your spouse must be under 60. If they are aged 60 to 64, they must not have permanently retired. Once your spouse turns 65, contributions can no longer be split to them. You can only split contributions from the prior financial year, not the current one. This means if you want to split contributions made during 2025/26, you need to lodge a splitting application with your fund early in the 2026/27 financial year.
This timing consideration is important for couples who want to start shifting balances strategically. Starting earlier matters, because the compounding benefit of even modest annual splits increases significantly the longer the strategy is in place.
A Note on the Spouse Contribution Tax Offset
Spouse contribution splitting is sometimes confused with the spouse contribution tax offset. These are two different things. The spouse contribution tax offset allows a member to make after-tax contributions directly into their spouse’s fund and receive a tax offset of up to $540, provided the receiving spouse earns below certain income thresholds.
If your superannuation balance is approaching $3 million, the spouse contribution tax offset is unlikely to be the most relevant mechanism for your situation. Contribution splitting, which shifts a portion of your own concessional contributions to your spouse’s account, is the form of spouse super contribution most directly relevant to managing Division 296 exposure as a couple.
How Does Spouse Contribution Splitting Help with Division 296?
The strategic purpose of contribution splitting in this context is to reduce the imbalance between two spouses’ superannuation balances over time.
Division 296 applies on a per-person basis. Everyone has their own $3 million threshold. A couple where one member has $4.5 million in super and the other has $500,000 will face a material Division 296 liability on the first member’s balance each year. The same couple with $2.5 million each sits comfortably below the threshold, with no Division 296 exposure at all.
By consistently splitting concessional contributions each year, you gradually shift your balance toward the more favourable distribution.
At the current maximum annual split of $25,500, the balance shift may appear modest in isolation. Over ten years, however, consistent splitting transfers approximately $255,000 into your spouse’s account before investment returns are considered. With compounding at a conservative return, the balance difference between the two accounts could narrow by $350,000 to $400,000 over that period, potentially deferring or materially reducing annual Division 296 exposure.
The strategy is not a single-year fix. It is a long-term lever that is most valuable when implemented early and maintained consistently.
When Does Spouse Contribution Splitting Make Sense?
This strategy works best in a specific set of circumstances:
- You have a significantly larger super balance than your spouse. If your balances are already similar, the strategy has limited impact on Division 296 exposure.
- Your spouse has capacity to receive contributions. Their fund must be able to accept the transfer, and they must meet the eligibility criteria.
- You are making sufficient concessional contributions to have something worth splitting. If your annual concessional contributions are low, the transfer amount will be small and the benefit correspondingly modest.
- You have time for the compounding benefit to accumulate. The strategy delivers its strongest results over many years, not over one or two.
- Relationship stability is an important consideration. Once contributions are transferred to your spouse’s account, those funds are legally theirs. Family law provisions govern how super is treated in the event of separation, and the associated risks can be addressed through appropriate legal structures such as binding financial agreements. This is one reason why integrated legal and financial advice is recommended rather than a reason to avoid the strategy altogether. Knowing the risk exists and planning around it appropriately is the right approach for financially sophisticated couples.
Other Strategies Worth Understanding
Spouse contribution splitting is one of several tools available for managing Division 296 exposure. A complete picture of the strategic landscape includes the following approaches, each of which requires tailored professional advice:
- Withdrawing and recontributing
If eligible, a member may be able to withdraw funds and recontribute them in a way that reduces their own balance, subject to non-concessional cap rules, age restrictions, and work test requirements.
- Restructuring assets held outside super
For members with significant assets, holding some investment assets in structures outside of superannuation may reduce the balance exposed to Division 296 while maintaining overall wealth accumulation.
- SMSF cost base reset and asset allocation review
For SMSF members, the one-time cost base reset election and a broader review of the types of assets held and their treatment under Division 296 may be relevant, particularly for funds holding long-held assets with significant embedded gains.
None of these strategies are appropriate for everyone. Their suitability depends on age, income, fund structure, and overall financial objectives. The value of a specialist review lies in identifying which combination of strategies delivers the best outcome for your specific circumstances.
What Should You do Next?
If your superannuation balance is approaching or already exceeds $3 million, the time to act is before the 2026 financial year ends. Contribution splitting requests must be lodged early in the following financial year, so reviewing your 2025/26 concessional contributions now puts you in the best position to act in time.
The questions worth addressing with a financial adviser are whether your current contribution levels support a meaningful split, how much your balance gap needs to close to reduce Division 296 exposure materially, and whether complementary strategies are appropriate for your overall financial position.
Spouse contribution splitting is a practical, low-complexity strategy that makes particular sense when there is a meaningful balance gap between spouses and sufficient time to let the compounding benefit accumulate. For many couples in this situation, it is a logical and immediate first step.
Would you like to understand exactly how Division 296 affects your position and whether contribution splitting makes sense for your family? Book a confidential conversation with our team.
Frequently Asked Questions
You can split up to 85% of your concessional contributions from the prior financial year, up to the concessional contributions cap. With the cap currently at $30,000, the practical maximum annual split is approximately $25,500. This amount is transferred to your spouse’s superannuation account and counts towards their balance.
Not significantly in the short term. The strategy works by gradually reducing your super balance and increasing your spouse’s, which over time moves both accounts closer to a position where less, or none, of your earnings attract the additional 15% tax. The greatest benefit comes from starting early and maintaining the strategy consistently over many years.
Under the passed legislation, Division 296 applies only to realised earnings, not unrealised gains. SMSF members can elect to reset the cost base of assets held on 30 June 2026 to market value, ensuring pre-commencement gains are not taxed. This election applies to all assets held directly by the fund and must be made by the due date of the 2026/27 tax return. SMSF members should seek advice on whether to exercise this election and how the new earnings calculation applies to their fund’s specific asset mix.
No. Any spouse super contribution strategy that builds your partner’s balance has broader retirement planning benefits regardless of Division 296. It can support a more balanced retirement income position for the couple, potentially reduce overall tax in retirement, and contribute to a more equitable distribution of wealth across both accounts.
Once contributions are split into your spouse’s account, those funds are legally theirs and subject to the superannuation laws applicable to their fund. In the event of relationship breakdown, Australian family law provisions govern how superannuation is treated. The risk is real but manageable. Binding financial agreements and appropriate legal structures can provide protection, which is why seeking integrated financial and legal advice before implementing the strategy is strongly recommended.
This content is general in nature and does not constitute personal financial advice. Your individual circumstances will determine which strategies are appropriate for you. Please consult a qualified financial adviser before making decisions about your superannuation.
