After an extended period of consultation and redesign, the Government’s proposed Division 296 (Div 296) tax is now taking clearer shape. While it was first announced in the 2023 Federal Budget, the version that is now expected to proceed is materially different from the original proposal and warrants renewed attention.
At a high level, Div 296 introduces an additional tax on superannuation earnings for individuals with very large total super balances, while leaving the underlying superannuation system intact.
What is Division 296 trying to achieve?
The policy objective is to reduce the concessional tax treatment available to individuals with particularly high superannuation balances. The Government’s view is that once a person’s total super exceeds a certain size, the existing tax concessions are no longer appropriately targeted.
Importantly, this is not a tax on super funds. It is a personal tax assessed to the individual, based on their share of earnings across all of their superannuation interests — whether held in an industry fund, retail fund, SMSF, or a combination.
How the tax will work
Under the revised design, Div 296 introduces a tiered approach:
- Earnings attributable to super balances above $3 million and up to $10 million will effectively be taxed at 30% (being the standard 15% fund tax plus an additional 15% Div 296 tax).
- Earnings attributable to balances above $10 million will face an effective tax rate of 40% (15% fund tax plus 25% Div 296 tax).
Both thresholds will be indexed over time, with the $3 million threshold increasing in $150,000 increments and the $10 million threshold in $500,000 increments.
A key change: no tax on unrealised gains
One of the most controversial elements of the original proposal was the inclusion of unrealised capital gains. That feature has now been removed.
Under the revised model, only realised earnings are taken into account. This includes income such as interest, dividends, rent, and realised capital gains. Market movements alone (without a sale or disposal) will not trigger a Div 296 tax liability.
This change significantly reduces liquidity pressure, particularly for SMSFs holding long‑term or illiquid assets.
Transitional CGT relief for SMSFs and small funds
A critical transitional measure has been included for SMSFs and other small funds.
Trustees will be able to make a one‑off election to reset the cost base of assets held directly by the fund to their market value as at 30 June 2026, solely for Div 296 purposes. The intent is to ensure that capital growth accrued prior to the commencement of the regime is not retrospectively taxed.
Key points to note:
- The election must apply to all eligible CGT assets held by the fund.
- It must be made by the time the 2026–27 return is lodged.
- The choice is irrevocable and requires records to be retained until five years after the asset is ultimately disposed of.
- Importantly, making the election does not trigger a CGT event, does not restart the 12‑month CGT discount period, and does not allow losses to be carried forward for Div 296 purposes.
For many SMSFs, this “clean slate” election will be a pivotal planning decision.
Timing – when does this start?
The commencement date has been deferred.
Div 296 is now intended to apply from 1 July 2026, meaning the 2026–27 financial year will be the first year in which earnings may be subject to the new tax.
Who is likely to be affected?
The rules apply across all types of superannuation, including defined benefit interests. Individuals who may be impacted include:
- Business owners with large SMSFs
- Long‑term high‑income earners
- Individuals with significant inherited super balances
- Members with interests spread across multiple funds
As with Div 293, while the tax is assessed personally, individuals will be able to elect to pay the liability themselves or have it released from their super account.
What should be happening now?
Although the primary legislation sets the framework, many of the practical mechanics will sit in the regulations, which are expected to be released for consultation.
In the meantime, it is prudent to:
- Identify clients whose total super balances are approaching the thresholds
- Focus on the accuracy and supportability of asset valuations at 30 June 2026
- Begin considering whether the CGT cost base reset may be appropriate for SMSF clients
- Factor Div 296 into broader retirement, estate planning, and investment strategies.
The valuation of superannuation interests at 30 June 2026 will be a critical reference point going forward, particularly for SMSFs holding long‑term growth assets.
Estimate the Impact
Curious how these changes will affect your specific client scenarios? Use our interactive tool to model potential liabilities.
Our team of SMSF experts is here to help you gain strategic insights, avoid pitfalls, find answers to essential questions, and stay compliant and confident. Book a consultation today or call us on 1300 023 170.
Disclaimer
This article has been prepared by SuperConcepts for general information purposes only. It is not financial product advice and has been prepared without taking into account any individual’s personal objectives, financial situation or needs. It is not intended to be a complete summary of the subject matter and should not be relied upon as such. You should consider seeking independent, professional advice that is specific to your personal circumstances before acting on any information contained herein.