Division 296

Division 296 is a suggested new tax that imposes an additional 15% tax on earnings associated with an individual’s total superannuation balance (TSB) exceeding $3 million. Following industry consultation, the government announced significant amendments in October 2025 to make the measure fairer and more sustainable.

This measure is designed to limit tax concessions for individuals with very large superannuation savings and applies across all superannuation accounts, including SMSFs.

Key Features

The original suggestion for this new tax was to tax unrealised gains for member balances over $3 million. This approach was controversial, as taxing unrealised gains is generally considered unfair and could increase costs for superannuation.

In addition, the original draft of the legislation proposed the $3 million as a fixed cap, with no indexation for inflation.

Exclusion of Unrealised Capital Gains

• Division 296 will now apply only to realised investment earnings.

• Unrealised gains or paper valuations are no longer subject to additional tax, removing prior uncertainty and liquidity pressures for SMSFs.

• Practically, this ensures that trustees are taxed only on actualised gains, aligning Division 296 more closely with the standard capital gains taxation principles under Division 295 and CGT provisions.

Indexed Thresholds

• The original $3 million threshold is now indexed annually in line with the Transfer Balance Cap.

• This prevents erosion of the threshold due to inflation or growth in super balances, maintaining proportionality in the measure.

• Indexation also provides a clearer framework for forward-looking planning, particularly for trustees managing funds approaching the high-balance threshold.

Introduction of a $10 Million Tier

• A second tax tier has been introduced to apply differential tax rates on high-balance super:

  • Earnings on balances between $3 million and $10 million: 30% tax rate.

  • Earnings above $10 million: 40% tax rate.

• The tiered structure creates a progressive application of Division 296, reflecting the government’s intent to target the super tax at very high-balance members.

• Trustees and advisers should model Division 296 liability carefully for members with balances near either threshold, considering both realised gains and projected earnings.

Implications for SMSF and Trustees

• Valuation and Compliance: Trustees must ensure accurate calculation of realised earnings and appropriately attribute them to the relevant portion of the fund exceeding the $3 million and $10 million thresholds.

• Investment Planning: The exclusion of unrealised gains reduces the need to sell assets prematurely to manage tax liabilities, but careful attention to realised earnings timing remains critical.

• Cashflow Management: Trustees may need to maintain liquidity to meet Division 296 obligations on realised earnings, particularly in years of high portfolio turnover or distributions.

• Integration with LISTO: While Division 296 targets high-balance members, the LISTO enhancements (eligibility extended to $45,000 income, cap increased to $810) improve fairness across the system.

Effective Date and Compliance

• Division 296 applies from 1 July 2026.

• The ATO will issue guidance and individual assessments based on realised earnings above the relevant thresholds.

• Practitioners should ensure valuation methodologies, reporting, and compliance procedures reflect the new rules, particularly for SMSFs approaching the $3 million or $10 million thresholds.

Members with Balances under $3m, at this point, are not affected by this suggested new tax.

For more information on taxation in SMSF’s see our main Tax page.

Division 296 and Death Benefit Planning

The proposed Division 296 tax is based on a member’s Total Superannuation Balance (TSB) and can affect super earnings for individuals with balances above key thresholds. Trustees should be aware that how benefits are paid after a member dies may influence a surviving beneficiary’s TSB and future Division 296 outcomes.

In particular, an automatic reversionary pension may immediately increase the beneficiary’s TSB, which could push them above the $3 million threshold used to determine additional Division 296 tax. Alternative approaches, such as a non‑reversionary death benefit pension or lump sum payment, may in some circumstances reduce the likelihood of early Division 296 exposure for high‑balance members. Trustees should consider these issues when reviewing death benefit strategies.