Understanding the new Division 296 superannuation tax changes

On 19 December 2025, the Federal Government released draft legislation introducing Division 296 as part of the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2025. Consultation closes on 16 January 2026.

The proposed measures are scheduled to commence from 1 July 2026, with the first assessment of Division 296 tax based on balances at 30 June 2027.

These changes represent a significant shift in how large superannuation balances are taxed and require careful planning for individuals with substantial superannuation assets.

Division 296 tax thresholds

Division 296 introduces two balance-based thresholds:

• Individuals with a Total Superannuation Balance (TSB) exceeding $3 million will be subject to an additional 15% tax on the proportion of earnings attributable to the balance above $3 million.
• Individuals with a TSB exceeding $10 million will be subject to a further 10% tax on earnings attributable to the balance above $10 million (in addition to the 15%).

Indexation of thresholds

The thresholds will be indexed to CPI, but only in fixed increments:

• The $3 million threshold increases in $150,000 increments. Indexation must exceed $3,150,000 before it increases to that level.
• The $10 million threshold increases in $500,000 increments. Indexation must exceed $10,500,000 before it increases.

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How the total superannuation balance is measured

To determine whether Division 296 applies, the ATO will assess an individual’s TSB at both the beginning and end of the financial year and use the higher of the two figures.

This prevents individuals from withdrawing substantial amounts during the year to fall below the threshold and avoid the tax.

Transitional rule – first year only

For the first year of operation, the TSB will be measured only at 30 June 2027. This creates a one-off planning window: individuals may withdraw funds prior to that date to reduce their TSB below $3 million if they wish to avoid Division 296 applying from commencement.

The ATO will identify affected individuals based on TSB reporting from all superannuation funds (including SMSFs and APRA-regulated funds).

How Division 296 earnings are calculated

Once an individual exceeds the threshold, the ATO will request each superannuation fund to report Division 296 earnings attributable to that individual.

For Self-Managed Superannuation Funds (SMSFs), Division 296 earnings are calculated by adjusting taxable income as follows:

• Deduct assessable contributions
• Deduct non-arm’s length income (NALI)
• Add back exempt current pension income (ECPI)
• Deduct ordinary taxable capital gains
• Add adjusted taxable capital gains
• Add pooled superannuation trust (PST) earnings (where relevant)

Cost base reset – key planning opportunity

A significant feature of the draft legislation is the ability for SMSFs to reset the cost base of all capital assets to market value at 30 June 2026 for Division 296 purposes.

This means unrealised capital gains accrued before 30 June 2026 will not be taxed under Division 296.

 Important considerations:

• The reset applies only for Division 296 calculations. Normal CGT rules for the SMSF continue to apply.
• The reset cost base must be recorded separately from standard SMSF accounting records.
• The SMSF must formally opt in by lodging an approved form with the ATO by the due date of its 2026 income tax return.
• If opting in, all assets must be reset. There is no ability to selectively reset individual assets.
• If an asset is in a loss position at 30 June2026, the lower market value becomes the new cost base for Division 296 purposes.

SMSFs can choose not to opt in. In that case, capital gains included in Division 296 earnings will mirror the gains reported in the SMSF’s taxable income.

Allocation of earnings within an SMSF

Where an SMSF has multiple members, Division 296 earnings must be allocated between members. The draft legislation does not prescribe the allocation methodology, with further detail expected in regulations.

Even where an SMSF uses asset segregation for pension purposes, Division 296 appears to apply on a pooled basis. In some cases, an actuarial certificate may be required to determine the allocation.

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How the tax is calculated

Once Division 296 earnings are determined, they are apportioned across the individual’s total superannuation balance.

• Earnings attributable to the portion above $3 million are taxed at 15%.
• Earnings attributable to the portion above $10 million are taxed at an additional 10%.

The tax is assessed to the individual personally. The individual can either:

• Pay the tax from personal funds; or
• Elect to release the required amount from their superannuation fund.

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Example

Samantha has:

Total superannuation balance: $12.2 million

• SMSF: $9.6 million
• APRA-regulated fund: $2.6 million

Division 296 earnings: $2 million

• SMSF adjusted earnings: $1.75 million
• APRA fund earnings: $250,000

 Proportion of balance:

• Above $3 million: $9.2 million (75.41%)
• Above $10 million: $2.2 million (18.03%)

 Division296 earnings attributable:

• Above $3 million: $1,509,197 leads to 15% tax = $226,230
• Above $10 million: $360,656 leads to additional 10% tax = $36,066

Total Division 296 tax payable: $262,295

This equates to an effective additional tax rate of approximately 13% on total Division 296 earnings.

Practical considerations

While the legislation is still in draft form, individuals with balances approaching or exceeding $3 million should begin modelling the potential impact.

Key considerations include:

• What is the effective tax rate on projected earnings under Division 296?
• Would certain assets be more tax-effective if held outside super (personally, via a trust or company)?
• Are there estate planning or restructuring opportunities that should be explored?
• Should balances be reduced below $3 million prior to 30 June 2027?
• Is the SMSF likely to benefit from the cost base reset?
• Ensuring the 2026 SMSF income tax return is lodged on time if opting in to the reset mechanism.

Importantly, even SMSFs with members currently below $3 million may consider the cost base reset, particularly where future growth is expected.

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How Sovereign Private can assist

At Sovereign Private, we work closely with business owners, high-net-worth individuals and family groups to structure superannuation and investment arrangements in a tax-efficient and commercially aligned way.

Division 296 introduces a new layer of complexity for those with significant superannuation balances. We can assist with:

• Modelling projected Division 296 exposure
• Evaluating restructuring strategies
• Advising on SMSF cost base reset decisions
• Integrating superannuation planning with broader tax and estate planning strategies

If you would like to understand how these changes may affect your position, please contact our team for tailored advice.

Disclaimer

The information contained in this publication is general in nature and does not take into account your personal objectives, financial situation or needs. It is provided for information purposes only and does not constitute financial or taxation advice. Before making any decision, you should consider your specific circumstances and seek appropriate professional advice.

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