After three years of debate and a substantial redesign, Division 296 passed Parliament in March 2026 and applies from 1 July 2026. The 2026–27 income year is the first year it operates.
The final version is very different from the original proposal. Unrealised gains are not taxed, both thresholds are indexed, and there is a second tier for balances above $10 million. If your total super balance is anywhere near $3 million, or will be, this is what you are dealing with.
Division 296 at a glance
- An extra 15% tax on the share of super earnings that relates to your balance between $3 million and $10 million
- A further 10% on the share that relates to your balance above $10 million
- Only realised earnings are counted
- The thresholds are indexed to inflation, in steps of $150,000 and $500,000
- The first test date is 30 June 2027, and the first assessments issue in 2027–28
- The tax is assessed to you personally, not to your fund, although you can have it paid from super
How Division 296 tax is calculated
- Your total super balance is measured across all of your funds. For 2026–27, only the balance at 30 June 2027 is used. From 2027–28 it is the higher of your opening and closing balance.
- Each fund works out the realised earnings attributable to your interest for the year.
- The share of those earnings that relates to your balance above $3 million is identified.
- That share is taxed at 15%.
For a member with a total super balance of $5 million and attributed earnings of $250,000, the share above the threshold is $2 million out of $5 million, or 40%. So $100,000 of earnings is taxed at 15%, a Division 296 bill of $15,000.
| Total super balance | Share of earnings taxed | Division 296 tax on $250,000 of earnings |
|---|---|---|
| $3.5 million | 14.3% | $5,357 |
| $5 million | 40% | $15,000 |
| $8 million | 62.5% | $23,438 |
This is on top of the tax your fund already pays. Earnings on the part of a balance between $3 million and $10 million are taxed at up to 30% in total, and up to 40% above $10 million.
The cost base reset for SMSFs
Because Division 296 taxes realised gains, a gain that built up over twenty years but is realised after 1 July 2026 would fall into Division 296 earnings in full. The legislation deals with this through a one-off cost base reset.
An SMSF trustee can elect to treat the fund’s assets as having a cost base equal to their market value at 30 June 2026, for Division 296 purposes only. The fund’s ordinary tax position is not affected. The points to understand:
- The election covers all of the fund’s assets. You cannot pick the winners.
- It is irrevocable.
- It is expected to be made by the due date of the fund’s 2026–27 annual return. Confirm the deadline before relying on it.
- Because it is all or nothing, a fund whose assets are below cost overall may be better off not electing.
The election depends on the market values at 30 June 2026. SMSFs already have to report assets at market value each year, but for property and unlisted investments the quality of that evidence now carries a tax consequence. If your 2025–26 fund accounts are still being finalised, treat the valuation as more than a formality.
How the tax is paid
The ATO works out the liability from what your funds report and issues an assessment to you. Payment is due 84 days after the assessment. You can pay it personally, or use the release authority issued with the assessment to have the amount paid from your super.
Planning points for large super balances
Do not withdraw in a hurry. Outside super, earnings are taxed at personal rates of up to 47%, or 25% to 30% in a company with more tax on the way out. Family trusts face a proposed 30% minimum tax from 1 July 2028, and the 50% CGT discount ends on 1 July 2027. Super taxed at 30% can still be the best option available.
Look at the balance between spouses. The $3 million threshold applies per person. A couple with $4.5 million and $1 million is in a different position from a couple with $2.75 million each. Contribution splitting, spouse contributions and withdrawal and recontribution strategies can help where the rules allow them.
Plan for liquidity. An SMSF whose main asset is a property needs cash to meet a release authority, or the member needs to fund the tax personally.
Think about the timing of asset sales. Earnings are counted when they are realised. A large sale puts all of that gain into a single year.
Review your estate planning. A reversionary pension or a death benefit paid as a pension can lift a surviving spouse over the threshold.
One change for lower balances
The same legislation improves the low income superannuation tax offset. From 1 July 2027 the income threshold rises from $37,000 to $45,000 and the maximum offset rises from $500 to $810.
Common questions about Division 296
Does Division 296 tax unrealised gains?
No. The original proposal did, but the enacted version counts realised earnings only.
Is the $3 million threshold indexed?
Yes. It is indexed to inflation in $150,000 steps, and the $10 million threshold in $500,000 steps.
Does the threshold apply per fund or per person?
Per person. Your total super balance across every fund you belong to is added together.
My balance is $2.5 million. Do I need to do anything?
Not immediately. But if you are in an SMSF and the balance is likely to pass $3 million, the cost base reset is a one-off decision, so it is worth considering now even though no tax is payable yet.
Need a hand with this?
If you or your spouse have a large super balance, particularly in an SMSF with property or unlisted assets, the cost base election and the 30 June 2026 valuations need attention before the fund’s return is lodged. We can model your exposure, compare the alternatives to super and work through the election with you. We are Chartered Accountants and registered tax agents in Cairnlea, in Melbourne’s west.
Related reading
- Super contribution caps 2026–27 and the carry-forward rule most people miss
- CGT discount ends 1 July 2027: indexation and the 30% minimum tax
- 30% minimum tax on family trusts from 1 July 2028 explained
- Payday Super started 1 July 2026: what employers need to do now
- Our full range of services
Sources
This article is general information only and does not take your personal circumstances into account. It reflects the law and announced measures as at October 2026. Measures described as draft or proposed may change before they are enacted. Speak to us before acting on anything you read here.
