After three years of debate and industry pushback, Division 296 tax is now law. It passed both houses of Parliament on 10 March 2026 and takes effect from 1 July 2026.
If your total superannuation balance is above $3 million, or approaching it, this is the most significant change to how your super is taxed in a generation. Here is what it means for your fund, in plain English.
Key Takeaways
- Division 296 tax passed Parliament on 10 March 2026 and applies from 1 July 2026.
- It is an additional 15% tax on super earnings for individuals with a total super balance (TSB) above $3 million. Above $10 million, an additional 10% applies on top of that.
- The tax is assessed to the individual, not the fund. It applies whether your super is in an SMSF, an industry fund, or a retail fund.
- The $3 million threshold will be indexed to CPI - a change from the original proposal, which had no indexation at all.
- SMSF trustees have a once-off, irrevocable option to reset the cost base of all fund assets as at 30 June 2026. This has a hard deadline.
- First assessments are expected in late 2027. You still have time to plan - but the pre-30 June 2026 decisions are the ones that matter most.
Contents
- What is Division 296 Tax?
- Who is Affected?
- How the Tax is Calculated
- When Does it Kick In?
- The CGT Cost Base Election: SMSF Trustees Only
- What to Do Before 30 June 2026
- Frequently Asked Questions
What is Division 296 Tax?
Division 296 is an additional tax on superannuation earnings for individuals whose total super balance (TSB) exceeds $3 million. It sits on top of the existing 15% tax your fund already pays on investment earnings inside super.
The name comes from the division of the Income Tax Assessment Act 1997 that contains the new provisions. You may also see it referred to as the “better targeted superannuation concessions” measure - the government’s official name for the legislation. It is also commonly referred to as the $3 million super tax in public discussion.
It does not change the tax rate on contributions. It does not change the tax treatment of withdrawals. It targets earnings inside super for individuals with very large balances, on the basis that the existing tax concessions go well beyond what is needed to fund a comfortable retirement.
For the ATO’s official guidance on Division 296, see the ATO’s better targeted super concessions page.
Who is Affected?
Division 296 applies to individuals whose total super balance exceeds the large super balance threshold (LSBT) of $3 million. Your TSB includes all superannuation interests you hold across all funds - SMSF, industry fund, retail fund, and defined benefit interests.
If you are approaching $3 million, Division 296 may not apply immediately but is worth planning for now. Strong investment returns, ongoing contributions, and the compounding effect of earnings mean balances close to the threshold can cross it without any deliberate decision.
If you are in pension phase, your account-based pension balance counts toward your TSB. Members drawing down pension payments may find their TSB fluctuates around the threshold from year to year.
If you hold super in more than one fund, all balances are combined for Division 296 purposes. The tax is assessed at the individual level, not per fund.
If you have a spouse or partner with a large balance, Division 296 is assessed individually. Strategies around contribution splitting or equalising balances between members may be relevant but require careful modelling with an SMSF specialist. For more on contribution strategies, see our SMSF Contribution Strategies guide.
How the Tax is Calculated
Division 296 works on the proportion of your realised earnings attributable to the balance above the threshold. It is not a flat tax on everything above $3 million.
| Total Super Balance | Additional Division 296 Tax | Effective Tax Rate on Earnings Above Threshold |
|---|---|---|
| $3M - $10M | 15% | 30% |
| Above $10M | 25% | 40% |
Worked example
Take a member with a $4.2 million TSB at 30 June 2027 and $210,000 in realised fund earnings for the year (after the fund’s standard 15% tax).
The amount above the $3 million threshold is $1.2 million - roughly 28.6% of the total balance.
Division 296 tax applies to 28.6% of the $210,000 in earnings: approximately $60,000 in attributable earnings.
The additional 15% Division 296 tax on that amount is approximately $9,000.
So the member pays their fund’s standard 15% on all earnings, plus an additional $9,000 personal liability. The effective tax rate on earnings above $3 million rises from 15% to 30%.
Indexation
Both thresholds will be indexed to CPI. This is a significant change from the original proposal, which had no indexation at all. Indexation applies in $150,000 increments for the $3 million threshold and $500,000 increments for the $10 million threshold, so the thresholds will only rise when CPI growth pushes them over the next band. Indexation means the real value of the threshold will not erode over time in the way that unindexed caps historically have.
For current contribution caps and balance thresholds, see the SMSF Rules and Limits reference page.
When Does it Kick In?
Division 296 applies to earnings from 1 July 2026 onward. The first ATO assessments will arrive after 30 June 2027, once the ATO has calculated each individual’s liability using annual return data. Assessments are generally due 84 days after the notice is issued. Like Division 293 tax, you will be able to elect to release funds from super to pay the liability rather than paying from personal funds.
The first year is different
For 2026-27 only, the ATO will assess your Division 296 liability based on your TSB at 30 June 2027 - not your opening balance on 1 July 2026. From 2027-28 onward, the higher of your opening or closing balance will be used. This transitional rule gives some members a short window to reduce their balance below the threshold by 30 June 2027 if they wish to avoid a 2026-27 assessment.
Reporting for SMSFs
SMSFs will report Division 296 information to the ATO via two new labels on the SMSF annual return, applying from the 2026-27 financial year. Your SMSF administrator or accountant will handle this as part of the normal annual return process.
The CGT Cost Base Election: SMSF Trustees Only
This is the most time-sensitive item in this article. If your fund holds assets with significant unrealised capital gains, read this carefully.
What the CGT Cost Base Election Is
SMSF trustees can make a once-off, irrevocable election to reset the cost base of all fund assets to their market value as at 30 June 2026. For Division 296 purposes only, any capital gains that accrued before 30 June 2026 are effectively excluded from future calculations.
This election is available to SMSFs and small APRA-regulated funds (SAFs). Members of large APRA-regulated funds cannot make it.
Why the CGT Election Matters for Pre-2026 Gains
Consider a commercial property purchased in 2012 for $800,000 that is now worth $1.5 million. Without the election, when that property is eventually sold, the full $700,000 gain will be included in the Division 296 earnings calculation. With the election, the cost base resets to $1.5 million as at 30 June 2026. Only gains from that point forward count for Division 296 purposes.
The decades of growth already built up inside the fund - before the tax regime even existed - are excluded from future calculations.
Key Conditions for the CGT Cost Base Election
- The election applies at the fund level. You cannot pick and choose individual assets - it applies to all assets or none.
- It is irrevocable. Once made, it cannot be undone.
- Any SMSF can make this election - even funds with no members currently above $3 million. If a member’s balance could reach $3 million in the future, opting in now locks in the relief for all pre-election gains.
- The election must be made by the due date for lodging the fund’s 2026-27 annual return.
When the CGT Election May Not Make Sense
The election applies to all assets, including any currently sitting below their purchase price. For a fund holding assets in a loss position, resetting those assets to current market value could eliminate a future capital loss that would otherwise reduce the fund’s CGT liability.
For most funds holding property or a diversified share portfolio with significant unrealised gains, the election is worth strong consideration. But the calculation is specific to each fund’s assets and member circumstances. This is not a decision to make without advice from your SMSF accountant or specialist.
Act before 30 June 2026: the cost base election deadline
The CGT cost base election deadline is tied to the due date for lodging your fund’s 2026-27 annual return - but the valuations that support it must reflect market value as at 30 June 2026. That means asset valuations need to be obtained before or around 30 June 2026, not after. If your fund holds direct property or unlisted investments, organising those valuations now is the starting point. Missing this election means forfeiting relief on decades of capital growth already built up inside the fund.
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What to Do Before 30 June 2026
If your TSB is above or approaching $3 million, there are three concrete steps worth taking before the end of this financial year.
1. Obtain current market valuations for all fund assets
This is the foundation for the CGT cost base election. The ATO expects valuations to be accurate and supported by objective evidence. For listed investments, current market prices are straightforward. For direct property and unlisted investments, a formal valuation from a qualified valuer is the appropriate approach.
Even if you ultimately decide not to make the election, having current valuations is good practice and will be needed for the 2025-26 annual return in any case. Your SMSF’s investment strategy should also reflect current asset values and allocation ranges.
2. Model your Division 296 liability
Fear of the unknown is often worse than the actual number. Ask your SMSF accountant or adviser to model what Division 296 will actually cost based on realistic earnings projections for 2026-27.
For many members just over $3 million, the annual liability is a few thousand dollars - significant but manageable, and potentially less than the cost of restructuring to avoid it. For members well above $3 million, the calculation is more consequential and warrants detailed modelling of withdrawal, restructuring, and contribution strategy options. See the SMSF Contribution Caps page for the current caps relevant to any withdrawal or contribution strategies you are considering.
3. Discuss the CGT cost base election with your specialist
This is an irrevocable decision with a hard deadline. Bring it to your SMSF accountant or adviser as a specific agenda item - not as an afterthought at the end of the annual review. The question to answer is whether the benefit of excluding pre-election unrealised gains outweighs any downside from resetting assets currently in a loss position.
If your fund holds a limited recourse borrowing arrangement (LRBA), the treatment of the borrowed asset in the TSB calculation is an additional consideration worth raising specifically with your adviser.
For a broader view of what the ATO is currently focused on across SMSF compliance, see our 2026 ATO compliance update for SMSF trustees.
Frequently Asked Questions
Does Division 296 tax apply to SMSFs specifically, or all super funds?
It applies to all superannuation funds - SMSF, industry fund, and retail fund. Division 296 is a personal tax assessed to the individual, not the fund itself. The significant difference for SMSF trustees is access to the CGT cost base election, which members of large APRA-regulated funds do not have.
Does Division 296 tax apply to unrealised gains?
No. The final legislation taxes only realised earnings - interest, dividends, rent, and actual capital gains realised by the fund. The original proposal would have used changes in your total super balance (which includes unrealised gains), but this was changed following industry feedback. The CGT cost base election is still extremely valuable because it resets the notional cost base of all fund assets to 30 June 2026 market value for Division 296 purposes only. This means pre-2026 growth is excluded from future Division 296 calculations when assets are eventually sold.
Can I withdraw money from my SMSF to get below $3 million?
Yes, if you are eligible to access your super. Whether it makes sense depends on your age, preservation status, the tax treatment of the withdrawal, and what you would do with the funds outside super. Withdrawing from super permanently removes those funds from the concessional tax environment. For members approaching or in retirement, the trade-off between Division 296 tax and the long-term benefits of keeping funds in super requires careful modelling. See our SMSF Pension Guide for the rules around accessing your fund in retirement.
What counts toward the $3 million total super balance?
Your TSB includes all superannuation interests across all Australian funds: accumulation accounts, account-based pensions, defined benefit interests, and any amounts in retirement phase. Superannuation interests in foreign funds are excluded. The TSB calculation under Division 296 removes the link to your transfer balance account and uses annual valuations instead.
When will I actually receive a Division 296 tax assessment?
First assessments are expected in late 2027, after the ATO has processed 2026-27 annual return data from funds. Assessments are generally due 84 days after the notice is issued. Like Division 293, you will be able to elect to have the ATO issue a release authority to your fund to pay the liability from your super rather than from personal funds.
What is the difference between Division 293 and Division 296?
Division 293 is an additional 15% tax on concessional contributions for individuals with income above $250,000. It has been in place since 2012. Division 296 is a new and separate additional tax on fund earnings for individuals with a TSB above $3 million. They are different taxes targeting different things. A high-income earner with a large super balance may be subject to both.
Does Division 296 affect my estate planning?
It can. If your TSB is above $3 million and you are in pension phase, the interaction between Division 296, your account-based pension, and your estate planning deserves specific attention. Your binding death benefit nomination and any reversionary pension nominations should be reviewed alongside your Division 296 strategy. For more on SMSF estate planning, see our SMSF Death Benefits and Estate Planning Guide.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always consult a licensed financial adviser or SMSF specialist before making decisions about your fund.