SMSF Division 296 Super Tax: What SMSF Members Should Know
- Future Accounting
- 15 hours ago
- 5 min read
Written by: Catherine Neville
The new SMSF Division 296 Super Tax introduces an additional tax on superannuation balances above $3 million and will impact some SMSF members from 1 July 2026.
With the recent Division 296 Super Tax finally passing through both houses in Parliament, we will be watching closely to see if amendments are made, and if legislation gets passed unchanged.
Background to the December 2025 changes to Div296 tax
Division 296 was originally proposed earlier in the government’s super reform agenda but underwent significant revisions following industry consultation.
On 19 December 2025, the Government released revised draft legislation outlining how the new tax would operate and confirming key elements of the policy.
The revised model introduced several important design features:
A $3 million total super balance threshold
An additional 15% tax on earnings attributable to balances above $3 million
A further 10% tax on earnings attributable to balances above $10 million
Indexation of thresholds over time
The tax assessed at the individual level rather than directly on the fund
When the new rules start
The Division 296 tax is expected to apply from 1 July 2026, meaning the first financial year affected will be 2026–27.
In any given financial year, it will potentially apply to individuals who have more than $3 million in super at the start or end of the year (ie 1 July 2027 or 30 June 2028 for the Division 296 tax for 2027/28).
The first ATO assessments are expected after 30 June 2027, once the relevant super balances and earnings have been reported.
For the first year of operation, a special transitional rule applies where the Total Super Balance is measured at 30 June 2027, allowing individuals time to adjust their super balances, if necessary, before the tax begins.
Therefore, an individual’s Total Super Balance at 30 June 2026 is not relevant.
Key structure of the SMSF Division 296 super tax
Under the final model introduced following the December 2025 reforms, Division 296 operates using two thresholds:
Super Balance | Additional Division 296 Tax |
Up to $3 million | No additional tax |
$3m – $10m | Additional 15% on attributable earnings |
Above $10m | Additional 25% total on attributable earnings |
These rates are in addition to the existing 15% tax already applied within super funds.
How the ATO determines whether Division 296 applies
The ATO will determine whether an individual is subject to Division 296 using their Total Superannuation Balance (TSB).
TSB includes all super interests across all funds, including:
SMSFs
Industry super funds
Retail super funds
Defined benefit interests
Super funds report these balances to the ATO annually, allowing the ATO to identify individuals whose balances exceed the thresholds.
The ATO will then calculate:
The individual’s superannuation earnings for the year
The proportion of the balance above the threshold
The Division 296 tax liability
The tax will be assessed to the individual, although they may elect to release funds from their super account to pay the liability.
What SMSF members should be paying close attention to
Firstly, although Division 296 is expected to affect only a small proportion of individuals overall and while the new version of the rules is to index the $3 million threshold in line with inflation, super can often go up more quickly than inflation. So, an individual sitting just below the threshold today may well cross it in the future.
Secondly, often the most tax effective way for couples is to inherit each other’s superannuation and to then convert it to a pension. Two couple members in a fund who each have $2 million balance in the fund would likely go over the $3 million threshold if one of them dies.
As the surviving spouse would have their own $2 million balance, but if they also received a pension from their spouse’s $2 million super balance, therefore this would be a total of $4 million for the surviving spouse within the fund.
Thirdly, another reason a SMSF has a unique opportunity is in relation to some special rules for the way in which Division 296 tax is calculated on income that comes from Capital Gains.
Specifically, that they can choose to have these capital gains worked out using the market value of the fund’s assets at 30.06.2026 rather than their original purchase price.
In other words, if an SMSF asset was bought years ago for $1 million, is worth $2 million on June 30, 2026, and is eventually sold for $ 2.5 million, a fund that “opts in” will be able to work out capital gains for Division 296 tax based on $ 500,000 ($2.5 million less $2 million) rather than $1.5 million ($2.5 million less $1 million).
This doesn’t mean the fund pays any less capital gains tax – nothing changes there. This cost base adjustment is for Division 296 tax purposes only and it will not trigger a CGT event or change the purchase date of the assets.
But it does mean the members’ earnings for Division 296 tax will be lower.
The interesting thing about this special concession is that any SMSF can opt in – even if none of its members have more than $3 million in super right now.
The idea is that you might go over $3 million in the future (or you might even have other super that means you’re actually already over $3 million, just not in your SMSF) – so your SMSF should be able to take up this relief.
That gives every SMSF trustee a choice to make at June 30, 2026: opt in or not?
Opting in means opting in for all assets – even those that are in a loss position at 30 June 2026. So, it won’t be right for everyone.
But for those whose SMSF assets are predominantly worth more than their original purchase price at 30 June 2026, it may seem a no-brainer.
If an SMSF wishes to opt in – and apply the cost base adjustment, it will need to make an election by the due date for lodging the fund’s 2027 SMSF annual return. Once made, the election cannot be revoked.
Once a valid opt in election is made and an asset is sold on or after 1 July 2026, the fund’s Division 296 fund earnings will be calculated using the adjusted cost base instead of the asset’s actual cost base.
So perhaps everyone with an SMSF cares about understanding Division 296 tax – even if just a little.
Final thoughts
For most individuals, the changes will have little impact.
However, individuals with super balances approaching or exceeding $3 million — particularly SMSF members — should review their strategies.
Understanding how the SMSF Division 296 Super Tax works now will help ensure superannuation planning remains tax‑effective, compliant and aligned with long‑term retirement objectives.
If you have an SMSF or a super balance approaching the $3 million threshold, now is a good time to review your strategy. If you would like to discuss your situation, we welcome you to book an appointment with our team at Future Accounting Group.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
