If your superannuation balance is approaching or has already crossed $3 million, Australia’s tax landscape just changed in a meaningful way. Division 296, the new additional superannuation tax, is now law, and it will apply to earnings from 1 July 2026.
For SMSF trustees in particular, the implications go beyond a simple rate change. This is a tax that requires active planning, careful record-keeping, and in many cases, the guidance of a qualified Division 296 financial advisor in Australia to navigate correctly. This guide explains what the tax is, how it’s calculated, who it affects, and what SMSF trustees should be doing right now.
What Is Division 296 Tax in Australia?
Division 296 is a new tax that applies to individuals with total superannuation balances (TSB) exceeding $3 million. It operates across two thresholds: balances above $3 million attract an additional 15% tax on earnings attributable to that excess; balances above $10 million attract an additional 25% in total. Importantly, thresholds will be indexed to inflation.
The Division 296 legislation received Royal Assent in March 2026 and will take effect from 1 July 2026. The measure introduces an additional personal tax on individuals with superannuation balances exceeding $3 million, separate from the existing 15% tax on super earnings. For earnings attributable to balances above the threshold, the effective tax rate rises to 25%.
Who Will Be Affected by the $3 Million Threshold?
The threshold applies to individuals, not to funds. The total value of a self-managed super fund may be above $3 million, but if no individual members have a TSB above the threshold, then no Division 296 applies. The threshold also applies per person, meaning couples can still have up to $6 million combined in super without either partner being individually liable for additional tax.
The ATO aggregates all your superannuation interests, including multiple APRA-regulated funds, SMSFs, and defined benefit schemes. Splitting balances across different funds does not reduce your total superannuation balance for Division 296 purposes.
How Is Division 296 Tax Calculated?
The Formula
The tax is calculated using the following approach:
Proportion of TSB above threshold x Fund earnings x Relevant tax rate
To assess Division 296 tax liability, a member’s total super balance at the start and end of the year will be compared, and the higher TSB will determine if the member is in scope.
The First Year Transitional Rule
In 2026 to 2027 (the first year), the tax will be applied based on the TSB at the end of the financial year (30 June 2027). This is a transitional arrangement. In future financial years, the higher of the TSB on the previous 30 June and the year-end TSB will be used.
Realised Earnings Only
A significant and hard-won change in the final legislation: Division 296 is now based on realised earnings only, not unrealised capital gains. The controversial measure taxing unrealised gains has been removed. This was one of the most contested aspects of the original proposal, and the amendment provides meaningful relief for SMSF trustees holding long-term assets such as property.
Does Division 296 Apply to SMSFs?
Yes. The tax applies to individuals whether they invest with a super fund or have a self-managed super fund (SMSF). Division 296 remains a personal tax, separate from the existing super fund tax, and applies to individuals rather than superannuation funds. For SMSF trustees, however, there are several unique compliance responsibilities that don’t apply to industry fund members:
- The SMSF must calculate and report Division 296 earnings to the ATO as part of the annual return from the 2026 to 2027 financial year onwards
- Trustees can elect to pay the tax from the SMSF via a release authority from the ATO
- The fund must allocate Division 296 earnings between members using a method prescribed in ATO regulations
The Capital Gains Relief: A Critical Opportunity for SMSF Trustees
This is one of the most important planning considerations for any SMSF with substantial unrealised gains, and the window to act is narrow.
SMSFs may be able to exclude capital gains accrued on assets before 1 July 2026 when calculating Division 296 earnings, provided the fund opts in to a special transitional relief. This relief is not automatic. SMSFs must opt in using an approved form on or before the due date of the fund’s 2026 to 2027 tax return.
Any SMSF can opt in, even if no member has more than $3 million in super at 30 June 2026. This may be relevant where members are expected to exceed the threshold in the future, and the fund already holds assets with large unrealised gains.
Missing this opt-in deadline means missing out on the relief entirely, and for funds holding long-held shares, managed funds, or SMSF assets that have appreciated significantly, the tax impact of not opting in could be substantial.
How SMSF Trustees Should Be Preparing for Division 296
Review Your Total Superannuation Balance
Start by getting an accurate picture of your TSB across all superannuation interests, not just your SMSF. If you’re approaching $3 million, the planning window before the first assessment date (30 June 2027) is now.
Assess the Capital Gains Relief Election
Work through the assets your SMSF currently holds and identify any with large unrealised gains. Discuss the opt-in election with your accountant or financial planner well before your 2026 to 2027 tax return is due. This is a one-time, irrevocable decision at the fund level.
Review Your Investment Strategy
Where assets have been held more than 12 months, the standard one-third capital gains tax discount continues to apply before Division 296 calculations. Holdings in the best ASX dividend stocks that generate franking credits may warrant a strategic review in the context of your new overall tax position.
Consider Your Contribution Strategy
With the additional tax applying to earnings above the threshold, the calculus on making further large contributions changes. Maximising the strategic use of concessional contributions, timing withdrawals carefully, and understanding how the higher of opening and closing TSB is used in the calculation from 2027-28 onwards are all worth modelling with a qualified adviser.
Plan for How You Will Pay the Tax
SMSF members can pay Division 296 tax from their fund via a release authority from the ATO. For SMSF trustees holding illiquid assets like property, ensuring the fund maintains sufficient liquidity to meet a potential tax bill is a genuine planning consideration that needs attention well in advance.
Division 296 is complex, and the consequences of getting it wrong are significant. At Rivkin, we’re here to help high-balance SMSF trustees navigate this new legislation with clarity and confidence. Get in touch with our team today!
Frequently Asked Questions
1. What is Division 296 tax?
Division 296 is an additional 15% tax on superannuation earnings attributable to balances above $3 million, and a further 10% on earnings attributable to balances above $10 million. It is a personal tax, separate from the existing fund-level superannuation earnings tax, and will apply from 1 July 2026.
2. Who will be affected by the $3 million threshold?
Any individual whose total superannuation balance — across all funds — exceeds $3 million at any point during a financial year. The threshold applies to individuals, not to funds or couples combined.
3. Does Division 296 apply to all super funds?
Yes, the tax applies to individuals regardless of whether they are in an APRA-regulated industry fund or a self-managed super fund. The key variable is the individual member’s TSB, not the structure of the fund they belong to.
4. Are unrealised gains included in the tax calculation?
No. Following amendments to the legislation, the controversial measure taxing unrealised gains has been removed. Division 296 is now based on realised earnings only, consistent with existing income tax concepts.
5. How can SMSF trustees prepare for Division 296?
Key steps include reviewing your total superannuation balance across all funds, assessing whether to opt in to the capital gains relief election before the 2026 to 2027 return deadline, reviewing your investment and contribution strategy, ensuring sufficient fund liquidity, and working with a qualified financial adviser experienced in SMSF tax planning.
Conclusion
Division 296 tax is now law and will apply to earnings from 1 July 2026. For SMSF trustees with balances approaching or exceeding $3 million, this is not something to monitor from a distance; it requires active planning, careful assessment of the capital gains relief election, and a clear understanding of how the tax interacts with your existing investment and contribution strategy.
For SMSF trustees, the compliance responsibilities are more demanding than for those in industry funds. Getting qualified advice now, before the first assessment period closes, is the most important step you can take.
If you are looking for our best financial planner in Australia, Rivkin provides trusted guidance to help SMSF trustees make informed decisions in a changing regulatory environment. Contact us today to get ahead of Division 296!
