Division 296: Rates, Rules and Key Dates
If you have combined total super balances nearing or above $3 million, you will likely be familiar with the new Division 296 tax.
Division 296 is now law and commenced from 1 July 2026. The first assessments will be issued after 30 June 2027 which means the planning window is open now.
What is Division 296?
Division 296 is a new personal tax separate from your fund's annual SMSF return. It applies an additional tax on superannuation earnings once your Total Superannuation Balance (TSB) exceeds $3 million. TSB is measured across everything you hold in super: SMSFs, APRA-regulated funds and defined benefit interests combined. Importantly, the $3 million threshold applies per individual not per couple. So a couple could still hold a combined $6 million in super between them without either partner being affected - provided each person's own TSB was under the threshold.
The Rates
Division 296 applies on top of the existing 15% concessional tax on fund earnings:
For TSB between $3 million and $10 million: an additional 15% tax will be imposed on the attributable earnings
For TSB above $10 million: a further 10% tax applies to earnings attributable to the portion above $10 million, taking the effective combined rate to 40% (15% + 15% + 10%)
Both the $3 million and $10 million thresholds are indexed to CPI, but there is a minimum $150,000 step up meaning indexation may lag behind actual CPI movements.
What About the Tax on Unrealised Gains?
The original proposal would have also taxed unrealised capital gains, meaning you could owe tax on assets that hadn't even been sold. Thankfully the Government saw reason and that measure has been dropped entirely. Division 296 will only apply to realised earnings — dividends, interest, rent and realised capital gains (net of realised losses) attributable to the portion of your balance above the threshold.
What About Gains Already Accrued?
As part of this change a cost base reset mechanism is available but only for a short window of time. The election needs to be formally made by the lodgement date of the FY27 SMSF annual returns. Note the ATO have not yet released the election form.
For 2026–27 there's a transitional rule. Rather than comparing your TSB at the start and end of the year (which is how it will work in future years), the 2026–27 liability is determined solely by your TSB at 30 June 2027.
From 2027–28 onward both the prior 30 June balance and the current year-end balance will be compared.
What this Means if You're Close to or Over $3 million
A couple of things worth turning your mind to before 30 June 2027:
Is your TSB likely to be near or over $3 million? Since this is measured across all your super interests (not just your SMSF), it's easy to underestimate if you've got balances split across an SMSF and an industry or retail fund.
Should the cost base reset be considered for your fund? If you're holding appreciated assets and might cross the threshold in future years, this is a decision with a limited window. You cannot selectively choose which assets have a cost base reset – it’s an all or nothing.
For most people this will mean a straightforward review rather than major changes — but it's worth knowing where you stand before the window closes.
Where We can Help
If you have an SMSF or your combined super balances are approaching $3 million, it's worth reviewing before 30 June 2027 rather than after. We can model your likely Division 296 exposure and work through whether a cost base reset makes sense for your fund.
Get in touch if you'd like to talk through your position or have other superannuation questions.
