Division 296 Superannuation Changes

What’s Changing

Effective 1 July 2026, Division 296 will apply a tiered tax on realised earnings for individuals with a total super balance (TSB) above $3 million, determined at 30 June 2027:

• Balances up to $3 million – taxed at the standard 15% on earnings.
• Balances between $3 million and $10 million – total concessional tax 30%.
• Balances above $10 million – total concessional tax 40%.

Key refinements include:

• Realised earnings only: The tax will now apply solely to realised (not unrealised) earnings, aligning with existing income-tax concepts.
• Indexed thresholds: The $3 million and $10 million thresholds will rise with inflation, keeping pace with movements in the Transfer Balance Cap.
• Implementation delayed: Commencement has been deferred by one year to 1 July 2026 to allow time for industry consultation and legislative finalisation.
• Defined-benefit parity: Equivalent treatment will be designed for defined-benefit members to ensure fairness across structures.

Why It Matters

These changes strike a fairer balance between maintaining superannuation’s concessional nature and addressing sustainability concerns.

The earlier proposal to tax unrealised gains risked significant cash-flow and valuation issues for SMSFs — particularly those holding property, private investments, or business assets. That approach has now been abandoned, which the SMSF Association described as “a day for the SMSF sector to savour”.

The National Tax & Accountants’ Association (NTAA) and other professional bodies have likewise welcomed the shift, recognising it as a pragmatic improvement that reflects the strong advocacy of the profession.

Practical Implications for SMSF Trustees

While the removal of unrealised gains is positive, Division 296 will still require planning and review for members with larger balances:

• Tax modelling and cash-flow: Understand how the two-tier tax impacts your after-tax returns. The change may influence the timing of asset sales, contribution strategies, and liquidity management.
• Structure and succession: Consider whether assets currently held inside super remain appropriately structured, given the new rates and thresholds.
• Defined benefit schemes: If applicable, monitor Treasury’s consultation to confirm equivalent treatment and valuation methodology.
• Indexation benefit: Indexed thresholds mean fewer members will fall into Division 296 over time simply due to inflation or compounding.

Example

An SMSF member with a $4.5 million super balance and $300,000 in realised earnings would pay Division 296 tax only on the portion of earnings relating to the $1.5 million above the $3 million threshold — translating to $15,000 of additional tax.

A member with a $12.9 million balance and $840,000 in realised earnings would pay approximately $115,000 in Division 296 tax. Even at that level, the total tax rate remains concessional compared to personal marginal rates.

Next Steps

• Treasury consultation will occur through 2026 to finalise how realised earnings are calculated and attributed.
• The first Division 296 assessments will be issued in the 2027–28 financial year.
• Affected individuals will be notified by the ATO and can choose whether to pay from personal funds or via their super fund.
  
  

What to do now

The latest refinements to Division 296 represent a sensible compromise that preserves confidence in Australia’s superannuation system while maintaining fairness and long-term sustainability.

For high-balance members, now is the right time to:

• Review projected super balances and investment strategies.
• Assess liquidity for potential realisation-based taxation.
• Seek tailored advice to optimise structure, timing, and tax outcomes.

Kelly+Partners' SMSF specialists can model the potential impact on your fund and help ensure your super strategy remains fit for purpose under the new rules.

Source: Treasurer Jim Chalmers, Media release, 13 October 2025 (Treasury). Additional reporting: Reuters. ministers.treasury.gov.au