After a long journey from when the Federal Government first announced this measure in early 2023, the Government’s ‘Building a Stronger and Fairer Super System’ measure – commonly called Division 296 tax – has completed its parliamentary passage, received Royal Assent on 13 March 2026 and will commence on 1 July 2026. For SMSF trustees and practitioners this change is significant: it alters how certain superannuation earnings will be taxed and triggers a number of practical compliance and planning issues you should address before the measure starts.
A reminder
Division 296 imposes an additional tax on a portion of superannuation earnings for individuals with large total superannuation balances (TSBs). The key parameters are straightforward:
- Thresholds: $3.0 million (large) and $10.0 million (very large), both CPI‑indexed in set increments.
- Tax rates: 15% on the portion of earnings corresponding to the part of a member’s TSB above $3m; an additional 10% applies to the portion above $10m. In effect, the part of earnings attributable to the segment $3m–$10m can face up to 30% effective tax and the portion above $10m up to 40%, when combined with existing fund taxation.
- How it’s assessed: the tax is imposed on individuals but is calculated based on fund‑level earnings. Funds will be required to calculate a Division 296 fund earnings figure and attribute earnings to members; the ATO issues Division 296 assessments to individuals, but they will have the option to have the assessed amount paid from their superannuation interest.
Attribution of Division 296 earnings to SMSF members
For members of an SMSF, superannuation earnings will be attributed to them based upon an actuary’s determination that will require a certificate to be obtained, similar to where an SMSF claims ECPI using the unsegregated (proportionate) method. An exception is where the SMSF is a single member fund. Different attribution rules apply for legacy defined benefit pension interests in an SMSF.
For more information on the associated regulations, which were published for comment on 17 March 2026, refer to our Blog “Division 296 Draft Regulations: What They Mean for SMSF Trustees and Actuaries”.
Determination of superannuation earnings
Unlike the original form of this measure which was based on a total superannuation balance change methodology, a fund‑level realised‑earnings approach, with adjustments, will be used to determine fund earnings for Division 296 purposes. For SMSFs without legacy defined benefit pensions, superannuation earnings is calculated as follows:
For SMSFs with members being paid legacy defined benefit pensions, their TSB will be based on family law valuation methodology and will use the original change in opening and closing TSB method from the original Bill to calculate Division 296 earnings.
Only post 30 June 2026 portion of realised capital gains to be included
The measure contains a further, optional adjustment in relation to fund capital gains derived from the 2026-27 income year. Where an SMSF makes an election, there will be CGT transitional adjustments to ensure that only the post 30 June 2026 portion of realised gains are included in Division 296 superannuation earnings.
Small funds, including SMSFs, can elect to adjust CGT cost bases to market value at 30 June 2026 for Division 296 purposes (an irrevocable election with record‑keeping ). The election, where made, is at the fund level, that is, it will apply to all fund CGT assets held. However, the election will not affect the CGT cost base for the purpose of calculating the capital gains or loss arising from the disposal of the asset for fund income tax purposes.
Practical implications for SMSFs
The law creates a number of practical and compliance tasks for SMSF trustees and advisers:
- Identify and prioritise clients with TSBs close to or above $3m. These should be identified and reviewed before 1 July 2026.
- Model outcomes: re‑run client modelling using the passed into law version of the measure, including the small‑fund CGT election scenario where relevant. The election, where taken, applies to all CGT assets held at 30 June 2026; is irrevocable and must be affected by the due date for lodgement of the Fund’s 2027 SMSF Annual Return. This election is not restricted to those SMSFs with members who have a TSB of at least $3 million.
- Actuarial involvement: multi‑member small funds with in-scope members will typically need an actuary to certify proportions for Division 296 attribution, to provide the time‑weighted percentage calculations required by the regulations.
- Record keeping: maintain clear records of valuations, contributions, and 30 June 2026 market value of fund assets, where the election is made.
- Estate planning and executors: Division 296 assessments can follow estate wind‑up. Trustees and executors may need to consider whether a member may have a Division 296 tax liability prior to paying the superannuation death benefit and/or distributing their estate, as assessments may arrive after distributions. Where a member decided to withdraw superannuation benefits due to the new measure, consider the effect on their estate planning.
- Systems and reporting: SMSF administrators and platform providers may need to be ready to supply the new reporting items the ATO will require (TSB values and attributable earnings). Challenges may arise where the SMSF invests via a wrap account or single line reporting investment report.
- SMSFs with legacy defined benefit pensions and with in-scope members, that is, members with a TSB more than $3 million, should seek advice on how the Division 296 tax measure will be calculated and what actuarial services will be required. Consideration should also be given to the 5-year legacy pension exit measure and the timing of any exit from the legacy pension.
Opportunities in the first year (transitional)
The first year has special transitional rules: for 2026–27, Division 296 eligibility and the amount of tax are determined solely by reference to the TSB at the end of that year (30 June 2027). This creates a clear planning horizon, and a fixed valuation point for trustees to consider. For trustees/members whose TSB sit near thresholds there may be timing considerations for disposals, rollovers or the small‑fund election that warrant a careful, documented decision.
Division 296 webinar
Join Mark Ellem, Head of SMSF Education as he unpacks these issues and practical steps in detail on 30 March 2026 in a webinar for SMSF practitioners and advisers: ‘Div 296 2.0 – a whole new ball game.’ We’ll cover calculations, the small‑fund Div 296 CGT election, attribution, and the key actions you should take now.
