Division 296 Explained — What SMSF Trustees and Advisers Need to Know

Division 296 Explained — What SMSF Trustees and Advisers Need to Know

Division 296 of the Income Tax Assessment Act 1997 introduces an additional tax on superannuation fund earnings for members with a total superannuation balance (TSB) above $3 million. The tax applies from the 2025-26 financial year onwards. The first assessments will be based on balances as at 30 June 2026.

This page is a plain-language guide to how Division 296 works, what it means for SMSF trustees and financial advisers, and the records your SMSF administrator needs to keep. It is general information only, not financial advice. If Division 296 affects you personally, speak with a licensed financial adviser about your specific circumstances.

What is Division 296?

Division 296 is a provision in the Income Tax Assessment Act 1997 (inserted by the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Act 2024) that imposes an additional 15% tax on the proportion of superannuation fund earnings attributable to a member’s balance above $3 million.

The standard tax rate on earnings inside superannuation is 15% (or 0% for earnings on assets supporting retirement-phase income streams). Division 296 does not replace this standard rate. It adds an additional 15% on earnings attributable to the portion of the balance above $3 million. The combined effective rate on that portion can therefore be up to 30%.

The tax is assessed on the individual member, not on the fund. Where a member has balances across multiple funds (including SMSF, industry, retail and defined benefit funds), the ATO will aggregate them using TSB data.

Who is affected by Division 296?

A member is subject to Division 296 if their total superannuation balance (TSB) exceeds $3 million at the end of a financial year. 30 June 2026 is the first measurement date.

Important points:

• The $3 million threshold is not indexed. It does not increase with inflation or CPI. Over time, bracket creep will bring more members into scope.
• The threshold applies per member, not per fund. If you have $2 million in an SMSF and $1.5 million in an industry fund, your TSB is $3.5 million and Division 296 applies.
• Both accumulation and pension-phase balances count towards the $3 million threshold.
• Defined benefit interests are included using a methodology specified in the legislation.

According to Treasury estimates, approximately 80,000 individuals (about 0.5% of all superannuation members) will be initially affected. However, without indexation, that number will grow over time.

How is Division 296 tax calculated?

The calculation has several components:

1. Determine total superannuation earnings (TSE). This is calculated as:
   TSE = TSB at end of year − TSB at start of year + withdrawals − contributions
   Essentially, it measures the change in your total super balance after adjusting for money that went in (contributions) and money that came out (withdrawals, benefit payments).
2. Calculate the proportion above $3 million. This is:
   Proportion = (TSB at end of year − $3,000,000) ÷ TSB at end of year
3. Determine Division 296 taxable earnings.
   Div 296 earnings = TSE × proportion above $3M
4. Calculate the tax.
   Div 296 tax = Div 296 earnings × 15%

If TSE is negative (i.e., the member’s balance went down after adjusting for contributions and withdrawals), no Division 296 tax applies for that year. The negative amount is carried forward to offset positive earnings in future years.

How are unrealised gains treated under Division 296?

This is the most debated aspect of Division 296. The tax applies to unrealised gains, not just realised gains.

Because the calculation is based on the change in TSB (which includes the market value of all fund assets), any increase in the market value of investments, even if they have not been sold, contributes to the TSE calculation. This means:

• Property. If an SMSF holds a property that increases in market value during the year, that increase is included in TSE, even though the property has not been sold and no cash has been received.
• Shares. An increase in the portfolio value of listed shares is captured, regardless of whether shares have been sold.
• Unlisted investments. Any change in the valuation of unlisted assets (private companies, trusts, collectibles) is captured.

Conversely, if asset values fall, the resulting negative TSE creates a carry-forward offset. The tax has a smoothing mechanism over time. But in any given year, a member can be taxed on gains they have not yet realised in cash.

Why this matters for SMSF administration: Accurate valuations at 30 June become critical. The valuation of every fund asset directly affects the Division 296 calculation. Undervaluations or overvaluations don’t just affect the financial statements. They affect the member’s personal tax liability. Your SMSF administrator must maintain rigorous valuation records and ensure they meet ATO requirements. See what records we keep.

How does the $3 million threshold work?

The $3 million threshold is:

• Per member. It applies individually, not at the fund level. In a two-member SMSF, each member has their own $3 million threshold.
• Not indexed. Unlike contribution caps and the transfer balance cap, the $3 million threshold will not increase over time. This is a deliberate policy decision. Treasury has acknowledged that more members will be caught over time.
• Aggregated across all funds. A member’s TSB includes balances in every superannuation fund they belong to: SMSF, industry fund, retail fund, defined benefit. The ATO aggregates this using Member Account Transaction Service (MATS) data and rollover reporting.

Division 296 worked example

Consider a member with the following position:

Step 1 — Total superannuation earnings:

$4,100,000 − $3,800,000 + $0 − $30,000 = $270,000

Step 2 — Proportion above $3M:

($4,100,000 − $3,000,000) ÷ $4,100,000 = 26.83%

Step 3 — Div 296 taxable earnings:

$270,000 × 26.83% = $72,439

Step 4 — Div 296 tax payable:

$72,439 × 15% = $10,866

The member would owe $10,866 in Division 296 tax for the 2025-26 financial year. This is in addition to the standard 15% tax on fund earnings already assessed at the fund level.

Note: this is a simplified example for illustration. Actual calculations may involve defined benefit adjustments, carry-forward offsets, and other factors. This is general information only, not financial advice.

What is the pre-30 June 2026 planning window?

Because the first Division 296 measurement date is 30 June 2026, there is a window between now and that date during which members, their advisers and their administrators can prepare. The work that falls within tax, compliance and administration (the work we do) includes:

• Accurate TSB calculation. Every member’s total superannuation balance must be accurately calculated as at 30 June 2025 (the opening position for the first Div 296 year) and again at 30 June 2026.
• Asset valuations. Every fund asset must be valued at market value as at 30 June. For property, unlisted assets and other illiquid holdings, this may require independent valuations. We coordinate this process.
• Record keeping. The ATO will rely on fund-level data to calculate Division 296. Our records must be audit-ready and consistent with ATO reporting requirements.
• Documentation of contributions and withdrawals. Every contribution and withdrawal during the year must be accurately recorded, classified and documented, because they directly affect the TSE calculation.
• TBAR and TSB reporting. Transfer balance account reports must be current and accurate, as they feed into the ATO’s TSB data.

Decisions about whether to restructure, withdraw, contribute differently or change investment strategies are financial advice matters that sit outside our scope. If Division 296 affects you, we strongly recommend speaking with a licensed financial adviser about your personal position. Our role is to ensure the numbers, records and compliance documentation are accurate.

What records does SMSFcentral keep for Division 296?

Division 296 makes SMSF record keeping more important than ever. Here is what we maintain for affected funds:

• Accurate opening and closing TSB for each member. This is the foundation of the calculation.
• Detailed contribution records, classified by type (concessional, non-concessional, downsizer, government co-contribution, etc.), with dates and amounts.
• Detailed withdrawal records: benefit payments, rollovers out, lump sums, commutations, with dates and amounts.
• Asset valuations at 30 June. For listed assets, market prices at close. For property and unlisted assets, independent valuations or documented methodologies meeting ATO requirements.
• TBAR lodgements, transfer balance account reports lodged with the ATO for pension commencements, commutations and other reportable events.
• Carry-forward offset tracking. Where a member has negative TSE in a year, we track the carry-forward amount for offset against future positive earnings.
• Complete audit trail supporting every number in the calculation, prepared to a standard that satisfies both the fund’s independent auditor and any ATO review.

How does Division 296 affect financial advisers?

If you advise clients with total superannuation balances approaching or exceeding $3 million, Division 296 creates several new considerations for your practice:

• Client segmentation. Identify which clients are affected and model the annual tax impact across their total portfolio, not just their SMSF.
• Valuation sensitivity. Because unrealised gains are taxed, the valuation of illiquid assets (property, unlisted investments) directly affects the tax outcome. Your administrator must be capable of maintaining these valuations to ATO standards.
• Documentation standards. The ATO will scrutinise Division 296 calculations closely in the early years. The records your administrator maintains become part of the compliance evidence.
• Client communication. Affected clients will need clear explanations of how the tax works, what it means for their balance, and why their administration costs may include additional valuation and reporting work.

For a practice-focused guide to managing Division 296 across your client book, see the Adviser’s Division 296 Playbook.

How does Division 296 affect non-advised trustees?

If you run your own SMSF without a financial adviser and your total superannuation balance is approaching or above $3 million, Division 296 adds a new tax to your annual obligations. Here is what you need to understand:

• The tax is on you, not the fund. Division 296 is assessed on the individual member. The ATO will issue an assessment to you personally (though the tax can be paid from the fund).
• Unrealised gains count. If your fund holds property or other assets that have increased in value, that increase is included in the calculation even if you have not sold the asset. This can create a tax liability without a corresponding cash flow.
• Accurate valuations are essential. The accuracy of the Division 296 calculation depends directly on the accuracy of your asset valuations at 30 June. For property and unlisted assets, this may require an independent valuation. We coordinate this as part of the annual compliance cycle.
• Carry-forward offsets. If your balance goes down in a year (after adjusting for contributions and withdrawals), the negative amount carries forward to offset positive earnings in future years.

We handle the calculation, documentation and reporting for Division 296 as part of the annual compliance cycle for affected funds. If you need advice about whether to change your contribution strategy, withdraw funds, restructure or take any other action in response to Division 296, that is a matter for a licensed financial adviser.

Division 296 and illiquid assets — property and unlisted investments

Division 296 creates a particular challenge for SMSFs that hold illiquid assets, those that cannot be easily sold to fund a tax liability. The most common examples:

• Residential and commercial property held directly in the SMSF.
• Property held under a limited recourse borrowing arrangement (LRBA).
• Unlisted company shares or unit trust interests.
• Collectibles, artwork and other non-standard assets.

If these assets increase in value, the unrealised gain is included in the Division 296 calculation. But the fund may not have the cash to pay the resulting tax without selling an asset or making additional contributions. This is a known design feature of the legislation and has been the subject of significant industry commentary.

What this means for administration:

• Property and unlisted assets must be valued at market value as at 30 June each year. The ATO has published guidance on acceptable valuation methodologies.
• For property, an independent valuation from a qualified valuer is the most defensible approach, particularly for the first Div 296 year.
• We maintain valuation records, coordinate with valuers where required, and ensure the values used in the financial statements and the Division 296 calculation are consistent and supportable.

Decisions about holding, selling or restructuring illiquid assets in response to Division 296 are financial advice questions that sit outside our scope.

Division 296 estimate calculator

[Calculator widget to be embedded here. The calculator provides a general estimate only — it does not account for defined benefit adjustments, carry-forward offsets, or personal circumstances. All outputs include the disclosure: “This calculator provides general information only — it is not financial advice. Speak with a licensed financial adviser about your specific circumstances.”]

Important — compliance boundary disclosure

SMSFcentral does not hold an Australian Financial Services Licence and does not provide financial advice.

Everything on this page is general factual information about how Division 296 operates under the legislation. It is not personal advice, it is not a recommendation to take any particular action, and it does not consider your individual financial circumstances, objectives or needs.

If Division 296 affects you, we recommend speaking with a licensed financial adviser who can assess your personal position and provide advice specific to your circumstances.

Our role is to get the calculation right, keep the records audit-ready, and make sure the compliance documentation meets ATO requirements. That is what we do. For full details of our registrations and compliance boundary, see our credentials page.

Frequently asked questions

What is Division 296?

Division 296 is a provision in the Income Tax Assessment Act 1997 that imposes an additional 15% tax on superannuation fund earnings attributable to a member’s total superannuation balance above $3 million. It applies from the 2025-26 financial year onwards.

When does Division 296 start?

Division 296 applies from 1 July 2025. The first measurement date is 30 June 2026, meaning the first assessments will be issued for the 2025-26 financial year.

How is Division 296 calculated?

The calculation measures total superannuation earnings (the change in total superannuation balance after adjusting for contributions and withdrawals), then applies the proportion of the balance above $3 million, and taxes that amount at 15%. See the full calculation methodology and worked example above.

Does Division 296 tax unrealised gains?

Yes. Because the calculation is based on the change in total superannuation balance (which includes market values of all assets), any increase in asset values is captured, even if the asset has not been sold. Conversely, decreases in value create carry-forward offsets.

Is the $3 million threshold indexed?

No. The $3 million threshold is fixed and does not increase with CPI or any other measure. Over time, more members will be brought into scope through investment growth and contribution accumulation.

Does Division 296 apply to my total super or just my SMSF?

Your total superannuation balance across all funds (SMSF, industry, retail, defined benefit) is aggregated. Division 296 applies to the total, not individual fund balances.

What happens if my balance goes below $3 million?

If your total superannuation balance is below $3 million at the end of a financial year, Division 296 does not apply for that year. Previous carry-forward offsets are preserved.

Can the Division 296 tax be paid from my super fund?

Yes. The member may elect to have the tax liability paid from their superannuation fund. The ATO will issue the assessment to the individual member, who can then direct the fund to make the payment.

How does Division 296 affect SMSF property?

If your SMSF holds property that increases in value, the unrealised gain is included in the Division 296 calculation. This can create a tax liability without a corresponding cash inflow. Accurate property valuations at 30 June are essential.

What records does my SMSF administrator need to keep for Division 296?

Your administrator must maintain accurate opening and closing member balances, detailed contribution and withdrawal records, asset valuations at market value as at 30 June, TBAR lodgements, carry-forward offset tracking and a complete audit trail. We maintain all of these as part of the annual compliance cycle for affected funds.

Should I withdraw money from super to get below $3 million?

That is a financial advice question and we cannot answer it. Whether to withdraw, restructure, change contributions or take any other action in response to Division 296 depends on your personal financial circumstances, objectives and needs. Speak with a licensed financial adviser.

How does SMSFcentral handle Division 296 for my fund?

We handle the calculation, documentation and reporting as part of the annual compliance cycle. This includes maintaining accurate member balances, coordinating asset valuations, tracking contributions and withdrawals, lodging TBAR, and producing an audit-ready record set. Our role is the numbers and the compliance, not the strategy.

Legislative references and ATO guidance

• Income Tax Assessment Act 1997 — Division 296 (Part 3-30, Division 296).
• Treasury Laws Amendment (Better Targeted Superannuation Concessions) Act 2024 — the amending legislation.
• ATO — Self-managed super funds — general SMSF guidance.
• Treasury — Better Targeted Superannuation Concessions — original consultation and explanatory materials.
• ATO — Transfer balance cap — relevant to TBAR and TSB reporting.

SMSFcentral Pty Ltd · ABN 81 611 115 505 · Tax Agent 25410256 · This page is general information only, not financial advice. SMSFcentral does not hold an AFSL and does not provide financial product or investment advice. Credentials and compliance boundary.

+ parts.join(‘.’);
}

/** Format a number 0..1 as a percentage. */
function formatPercent(p) {
if (!isFinite(p)) return ‘—’;
return (p * 100).toFixed(2) + ‘%’;
}

/**
* Calculate Division 296 tax estimate.
* @param {Object} input
* @param {number} input.tsbStart – Total Super Balance at start of year
* @param {number} input.tsbEnd – Total Super Balance at end of year
* @param {number} input.contributions – Net contributions during year
* @param {number} input.withdrawals – Net withdrawals during year
* @param {number} [input.unrealisedPre2026] – Pre-30 June 2026 unrealised gains to exclude
* @param {boolean}[input.excludeUnrealised] – Whether to apply the exclusion
* @returns {Object} result
*/
function calculate(input) {
var tsbStart = Number(input.tsbStart) || 0;
var tsbEnd = Number(input.tsbEnd) || 0;
var contributions = Number(input.contributions) || 0;
var withdrawals = Number(input.withdrawals) || 0;
var unrealised = input.excludeUnrealised ? (Number(input.unrealisedPre2026) || 0) : 0;

var rawEarnings = (tsbEnd – tsbStart) + withdrawals – contributions;
var earnings = rawEarnings – unrealised;

var prop3 = tsbEnd > THRESHOLD_3M ? (tsbEnd – THRESHOLD_3M) / tsbEnd : 0;
var prop10 = tsbEnd > THRESHOLD_10M ? (tsbEnd – THRESHOLD_10M) / tsbEnd : 0;

var taxableEarnings = Math.max(0, earnings);
var tax3 = taxableEarnings * prop3 * RATE_3M;
var tax10 = taxableEarnings * prop10 * RATE_10M_EXTRA;
var tax = tax3 + tax10;

var effectiveRate = taxableEarnings > 0 ? tax / taxableEarnings : 0;

return {
rawEarnings: rawEarnings,
excludedUnrealised: unrealised,
earnings: earnings,
taxableEarnings: taxableEarnings,
proportionAbove3m: prop3,
proportionAbove10m: prop10,
tax3m: tax3,
tax10m: tax10,
tax: tax,
effectiveRate: effectiveRate,
belowThreshold: tsbEnd <= THRESHOLD_3M, negativeEarnings: earnings < 0 }; } /** * Validate inputs. Returns { ok, errors: {field: msg} }. */ function validate(raw) { var errors = {}; function check(field, label, opts) { opts = opts || {}; var v = parseCurrency(raw[field]); if (isNaN(v)) { errors[field] = label + ' is required and must be a number.'; return; } if (!opts.allowNegative && v < 0) { errors[field] = label + ' cannot be negative.'; } } check('tsbStart', 'TSB at start of year'); check('tsbEnd', 'TSB at end of year'); check('contributions', 'Net contributions'); check('withdrawals', 'Net withdrawals'); if (raw.excludeUnrealised) { check('unrealisedPre2026', 'Pre-2026 unrealised gains'); } return { ok: Object.keys(errors).length === 0, errors: errors }; } /** * Bind the calculator to a root element containing the standard form markup. * Looks for inputs by data-d296 attribute and outputs by data-d296-out. */ function bind(root) { if (!root) return; var form = root.querySelector('[data-d296-form]'); if (!form) return; function getRaw() { return { tsbStart: form.querySelector('[data-d296="tsbStart"]').value, tsbEnd: form.querySelector('[data-d296="tsbEnd"]').value, contributions: form.querySelector('[data-d296="contributions"]').value, withdrawals: form.querySelector('[data-d296="withdrawals"]').value, unrealisedPre2026: form.querySelector('[data-d296="unrealisedPre2026"]').value, excludeUnrealised: form.querySelector('[data-d296="excludeUnrealised"]').checked }; } function clearErrors() { var els = form.querySelectorAll('.smsfc-d296-calc__error'); for (var i = 0; i < els.length; i++) els[i].textContent = ''; var inputs = form.querySelectorAll('input'); for (var j = 0; j < inputs.length; j++) inputs[j].removeAttribute('aria-invalid'); } function showErrors(errors) { Object.keys(errors).forEach(function (k) { var el = form.querySelector('[data-d296-error="' + k + '"]'); if (el) el.textContent = errors[k]; var input = form.querySelector('[data-d296="' + k + '"]'); if (input) input.setAttribute('aria-invalid', 'true'); }); } function setOut(name, value) { var el = root.querySelector('[data-d296-out="' + name + '"]'); if (el) el.textContent = value; } function run() { clearErrors(); var raw = getRaw(); var v = validate(raw); if (!v.ok) { showErrors(v.errors); root.querySelector('[data-d296-results]').setAttribute('hidden', ''); return; } var input = { tsbStart: parseCurrency(raw.tsbStart), tsbEnd: parseCurrency(raw.tsbEnd), contributions: parseCurrency(raw.contributions), withdrawals: parseCurrency(raw.withdrawals), unrealisedPre2026: parseCurrency(raw.unrealisedPre2026), excludeUnrealised: raw.excludeUnrealised }; var r = calculate(input); setOut('earnings', formatCurrency(r.earnings)); setOut('excludedUnrealised', formatCurrency(r.excludedUnrealised)); setOut('proportion3m', formatPercent(r.proportionAbove3m)); setOut('proportion10m', formatPercent(r.proportionAbove10m)); setOut('tax3m', formatCurrency(r.tax3m)); setOut('tax10m', formatCurrency(r.tax10m)); setOut('tax', formatCurrency(r.tax)); setOut('effectiveRate', formatPercent(r.effectiveRate)); var note = root.querySelector('[data-d296-note]'); if (note) { if (r.belowThreshold) { note.textContent = 'Estimated TSB at year end is at or below $3,000,000 — no Division 296 tax applies.'; } else if (r.negativeEarnings) { note.textContent = 'Estimated earnings are negative for the year — no Division 296 tax payable. The loss may be carried forward.'; } else { note.textContent = ''; } } root.querySelector('[data-d296-results]').removeAttribute('hidden'); } form.addEventListener('submit', function (e) { e.preventDefault(); run(); }); form.addEventListener('reset', function () { setTimeout(function () { clearErrors(); root.querySelector('[data-d296-results]').setAttribute('hidden', ''); }, 0); }); } var api = { calculate: calculate, validate: validate, parseCurrency: parseCurrency, formatCurrency: formatCurrency, formatPercent: formatPercent, bind: bind, THRESHOLD_3M: THRESHOLD_3M, THRESHOLD_10M: THRESHOLD_10M, RATE_3M: RATE_3M, RATE_10M_EXTRA: RATE_10M_EXTRA }; if (typeof module !== 'undefined' && module.exports) module.exports = api; global.SMSFCDiv296 = api; })(typeof window !== 'undefined' ? window : this);