Who may be affected

Division 296 applies to individuals based on their Total Superannuation Balance (TSB). Importantly, the law aggregates balances across all super interests. These interests include industry funds, retail funds, pensions, and SMSFs. Currently, the proposal sets out two thresholds. In addition, the design indexes both thresholds to inflation:

• $3 million threshold (indexed)
• $10 million threshold (indexed)

How the extra tax works (in simple terms)

Division 296 operates as a personal tax that applies directly to individuals. In most cases, individuals may choose how they pay the liability, including an election to pay it from super. Importantly, the tax does not apply as a flat rate to amounts above the thresholds. Instead, the framework applies the tax to a portion of earnings. The calculation depends on how much of an individual’s TSB exceeds each threshold

• For TSB above $3 million, the law applies an additional 15% to the relevant
  portion of earnings.
• For TSB above $10 million, the framework applies a further 10% to the relevant
  portion of earnings.
  As a result, the Division 296 component totals 25% on amounts above $10 million.

Key design shift: no tax on unrealised “paper gains”

The revised draft framework adopts a realised earnings approach. Importantly, this approach aligns with existing tax principles. In practice, the framework builds earnings from items such as interest, dividends, rent, and realised capital gains. In addition, the calculation allows for capital losses and applicable CGT discounts. By contrast, annual market value changes for unsold assets do not form part of the calculation.

How the taxable “proportion” is measured

To limit timing strategies, the draft design references the greater of an individual’s opening or closing TSB. However, a transitional approach applies in the first year.
Specifically, for the 2026–27 income year, the design uses only the member’s 30 June 2027 balance.

SMSF‑specific considerations

30 June 2026 cost base reset (opt‑in)

SMSFs may exclude capital gains accrued before 30 June 2026 from the Division 296 calculation. To do this, the fund tracks a separate notional cost base.
This cost base reflects market value as at 30 June 2026 and applies only for Division 296 purposes. This option does not apply automatically.

Instead, SMSFs must opt in by the due date of the fund’s 2026–27 annual return. Once the fund opts in, the reset applies at the fund level and covers all assets. Consequently, selective application to individual assets is not permitted.

Notably, standard SMSF CGT treatment remains unchanged.

Allocating earnings between members

Because Division 296 applies to individuals, super funds must allocate earnings to each member. For SMSFs, future regulations are expected to define the allocation method. Based on current Treasury guidance, some funds may need a special actuarial certificate. In some cases, this requirement may apply even where the fund holds only accumulation interests.

Practical planning themes (evergreen)

• Understand your aggregated TSB across all super funds and pensions.
• In addition, consider liquidity needs, particularly for property‑heavy SMSFs.
• At the same time, maintain clear valuation records, especially around 30 June 2026.
• Finally, review retirement income and estate structures to ensure they remain appropriate.

Sources & Additional Reading

BDO Australia

Understanding the new Division 296 superannuation tax changes (6 January 2026)

SuperGuide

Division 296 super tax explained (19 December 2025)

SMSF Adviser

Div 296 draft legislation released for consultation (19 December 2025)
Sladen Legal

The new Div 296 draft legislation (SMSFs) (14 January 2026)