The long awaiting Division 296 legislation is now law and will start on 1 July 2026, applying an extra personal tax to earnings on individuals with total super balances (TSB's) above $3 million (with a higher rate above $10 million). The core design is settled, but some detailed regulations and ATO guidance are still being finalised.
It does not cap how much an individual can hold in super, but it reduces the tax concessions on investment earnings attributed to the portion of your balance above $3 million (and even more above $10 million).
Who may be affected?
Division 296 is assessed per individual based on their own TSB, not on the total value of the SMSF or a superfund as a whole. This means an SMSF can exceed $3m (or even $10m) without any Division 296 liability if no single member’s personal TSB goes over the thresholds. The $3m and $10m thresholds are personal caps, applied across all of a member’s super interests, regardless of how large the combined fund balance is.
Division 296 therefore looks at an individual's total super across all funds – SMSFs, industry, retail and public sector funds combined.
You are potentially subject to the tax if your total super balance exceeds $3 million at the relevant time; a higher rate applies once total super exceeds $10 million.
It's also worth keeping in mind that individuals who inherit a spouse’s super as a pension and leave it in the system may find this pushes their total balance above $3 million over time.
Finally, only a small number of people are fully exempt (for example, certain child pensions and structured settlement contributions following serious personal injury), but these situations are rare.
How the tax is worked out
Division 296 is a personal tax assessed to you, not to your super fund, even though it is calculated using your share of the fund’s earnings.
‘Earnings’ for Division 296 are essentially your share of your fund’s taxable investment income: rent, interest, dividends, franking credits and realised capital gains, less deductible investment expenses.
The extra tax is calculated as follows:
- 15% × the proportion of your super balance over $3 million × your Division 296 earnings, plus
- 10% × the proportion of your super balance over $10 million × your Division 296 earnings.
It's also worth noting that the $3 million and $10 million thresholds will be indexed over time with inflation, but only in steps of $150,000 and $500,000 respectively, rather than every year.
Worked Examples -
1. Ava has a 30 June 2027 member balance of $4.0 million. The investment earnings attributed to her account for the 2027 year are $150k.
Proportion of TSB over $3m = ($4.0m – $3m)/$4.0m = 25%
Tax Liability = 15% x $150k x 25% = $5,625
2. Ella has a 30 June 2027 member balance of $13 million. The investment earnings attributed to her account for the 2027 year are $1m.
Proportion of TSB over $3m = ($13m – $3m)/$13m = 76.92%
Proportion of TSB over $10m = ($13m – $10m)/$13m = 23.08%
Tax Liability = (15% x $1m x 76.92%) + (10% x $1m x 23.08%) = $115,384.62 + $23,076.92 = $138,461.54
Key dates, balance tests and earnings
Division 296 starts in the 2026–27 financial year, with the first year’s test based solely on your total super balance at 30 June 2027.
From 2027–28 onwards, the proportions over $3 million and $10 million are based on whichever is higher: your balance at the start of the year or at the end of the year.
This then means that in later years you can still be subject to Division 296 even if you reduce your balance before 30 June, where your starting balance was higher.
Importantly though, only realised capital gains are included in Division 296 earnings; unrealised gains (market movements without a sale) are excluded under the final version of the legislation.
Capital gains relief and SMSF-specific issues
Capital losses reduce capital gains for Division 296 purposes in the same way as for normal fund tax, including losses carried forward from earlier years.
However, SMSFs can choose to ‘opt in’ to transitional relief so that, for Division 296 purposes, taxable gains effectively only reflect growth in asset values from 30 June 2026 onwards.
To use this relief, an SMSF must:
- Elect in by the due date of the 2026–27 annual return, and
- Record asset values as at 30 June 2026; the adjustment then applies across all assets, not on a pick‑and‑choose basis.
Funds that are not SMSFs receive a different form of relief, using a standard reduction to capital gains for the first four years of the regime.
Key effects of opting in to CGT relief
Protects future earnings: Resets asset cost bases to 30 June 2026 market values for Division 296 purposes only. When assets are sold later, only post‑30 June 2026 gains count toward Division 296 earnings (fund CGT remains on full historical gain).
Future‑proofs against growth: If your balance grows above $3m (eg, via contributions, strong returns or inheritance), you avoid Division 296 taxing pre‑existing embedded gains when assets are realised.
However, it applies fund‑wide to all assets and all members – no cherry‑picking. If you have assets in loss at 30 June 2026, you lock in a lower cost base if the loss-making shares are not sold before 30 June 2026.
Generally it will be beneficial for most SMSF's to opt in anyway, especially if your SMSF has significant unrealised gains overall and is likely to exceed $3m soon (or even sometime in the future). SMSF's may choose not to opt in if there are heavy losses or low growth prospects.
Application of Division 296 after death
A Division 296 tax liability may still arise in the year of death, as the calculation is based on the individual’s total superannuation balance at the start of the income year. This creates a practical consideration for executors, who will need to be mindful of any potential Division 296 liability arising down the track.
However, transitional rules will apply such that Division 296 will not apply for the 2026–27 income year where an individual dies before 30 June 2027.
Defined Benefit Pensions
People with defined benefit pensions will also be subject to Division 296 tax.
There are unique calculations because Defined Benefit interests don’t have a simple account balance but rather, they instead use annual actuarial valuations based on age, gender, pension type and reversionary status.
Some steps are very fund‑specific, so if you are in receipt of a defined benefit pension, we recommend you contact your super fund for details on how your defined benefit interest will be valued and what earnings will be attributed to you.
Paying the tax and planning considerations
You will receive a separate Division 296 assessment from the ATO once it has the necessary data from your super funds; timing may be later than your normal income tax assessment.
Although Division 296 is assessed to you personally, there are special rules that allow you to have the tax paid from your super, even if you have not met a standard condition of release.
For many people with large balances, super may remain a relatively attractive environment compared with investing in their own name or through a company or trust, even after Division 296. Withdrawing or restructuring to avoid or reduce Division 296 should be considered carefully because alternative structures may still result in higher overall tax over time, and large withdrawals or in‑specie transfers can trigger significant capital gains tax and transaction costs (for example, brokerage or stamp duty) at the fund level.
Where to from here?
SMSF trustees with property should shortly begin the process of obtaining independent professional appraisals as at 30 June 2026 to support the cost‑base uplift election for Division 296 relief; and
Remember that Division 296 liability in the first year (2026–27) is based solely on your total super balance at 30 June 2027. There is no need to rush withdrawals before 1 July 2026 – your balance at 30 June 2026 is irrelevant for the initial test.
