The Division 296 legislation has now passed both Houses of Parliament (10/03/2026). The tax will commence from 1 July 2026, meaning it is in play for 2026 - 2027. As it has passed both houses, it is now just awaiting a rubber stamp from the Governor General – it will become law.
As a reminder, the Division 296 tax will impact everyone who has a personal total super balance of more than $3 million. This further complicates how you are taxed on superannuation earnings:
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First $3 million – earnings on this will be taxed at 15% if in accumulation phase (no change)
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Between $3m and $10 million – earnings on this will be taxed at an additional 15%
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Over $10 million – earnings will be taxed at an additional 10%.
This means if you are in Accumulation phase with more than $10 Million, part of your earnings will be taxed at 40%.
The final legislation does NOT tax unrealised gains. The definition of ‘earnings” is fairly normal. It is usual income – interest, dividends, rent (in SMSF), and realised capital gains (ignoring contributions) less deductible expenses.
Please note that in normal years the tax will apply to the greater of your total super balance at either 01 July or at 30 June. So, if your balance is over $3m at the start of the year and under at the end of the year, you will pay the tax. (See Transitional Rules below).
Please remember that the Division 296 tax is paid personally.
Unrealised Capital Gains Relief
While there is no grandfathering, you can elect to lock in unrealised capital gains. However, you cannot select individual assets. For SMSFs this means that you could have a share portfolio with unrealised losses or neutral position and property with large, unrealised gains and you will have to decide to lock in everything or nothing. You cannot elect to ignore the shares and lock in the property gains. Working out what to do will be a little tricky.
The other nightmare is the two different capital gains tax calculations in future:
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The original cost base will be used to calculate the normal capital gains tax paid by your SMSF.
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The uplifted cost base will only apply for the capital gains calculation for Division 296 earnings.
You can elect to opt in to the capital gains relief even if your Total Super Balance is under $3m now (but you are concerned about it going over in the future).
Please note that for retail and industry super funds (non SMSF), the outcome is completely different. Non-SMSFs will have an arbitrary reduction for assumed capital gains in the first 4 years (2026/2027 – 2029/2030 inclusive).
Transitional rule
Transitional provisions apply in the 2026/27 income year. For this income year, Division 296 tax will be determined solely by the individual’s Total Super Balance at 30 June 2027.
This means you will have until 30 June 2027 to make any changes to your retirement strategy.
Death
Where the individual passes away:
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in 2026/2027, no Division 296 tax liability can arise if you have passed away before 30 June 2027.
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from the 2027/2028 income year, Division 296 tax will apply if TSB exceeds the large super balance threshold either on 30 June prior or at the end of the income year. The Division 296 tax will be payable by the deceased’s estate. This means if you start 01 July 2027 with a balance > $3M then you pass away and your balance has dropped under $3M, your estate will still pay the tax. (Deathbed withdrawals will not get you out of this tax from 01 July 2027).
Further guidance to come
As of this morning, the Regulations have not yet been released. (Regulations tell us how the legislation will actually work and provide further guidance).
In future, the $3M and $10M thresholds will be indexed in line with CPI in $150,000 and $500,000 increments (respectively).
Learn more
We’ll be hosting a webinar on Wednesday, 15 April, where we’ll walk through the changes in more detail and what they may mean for you. An email invite will be sent to clients in the coming weeks.
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