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 2026-27 financial year onwards. The first assessments will be based on realised earnings for the year ending 30 June 2027.

This page is a plain-language guide to how Division 296 works under the final legislation, 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 Better Targeted Superannuation Concessions legislation passed by Parliament in March 2026) that imposes an additional 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 between $3 million and $10 million, and a further 10% on earnings attributable to the portion above $10 million. The combined effective rate can therefore be up to 30% on the $3m–$10m portion and up to 40% above $10 million.

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 2027 is the first measurement date.

Important points:

• The $3 million threshold is indexed to CPI under the final legislation, increasing in $150,000 increments. The $10 million threshold for the higher tier is also indexed, in $500,000 increments. (Earlier drafts proposed a fixed threshold – that did not survive into the final law.)
• 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.

Treasury originally estimated approximately 80,000 individuals (about 0.5% of all superannuation members) would be affected at commencement. Because the thresholds are now indexed, the population caught by the measure grows more slowly than under the original fixed-threshold design.

How is Division 296 tax calculated?

Under the final legislation, the calculation works on realised earnings – actual income and realised gains, similar to ordinary income tax concepts. It has several components:

1. Determine the member’s superannuation earnings for the year. This is based on the fund’s realised earnings attributable to the member – interest, dividends, rent and net realised capital gains (after allowing for relevant expenses and carried-forward losses). Unrealised movements in asset values are not included.
2. Calculate the proportion above $3 million. This is:
   Proportion = (TSB at end of year − $3,000,000) ÷ TSB at end of year
   A second proportion is calculated the same way for the portion above $10 million.
3. Determine Division 296 taxable earnings.
   Div 296 earnings = realised earnings × proportion above the threshold
4. Calculate the tax.
   Div 296 tax = (earnings × proportion above $3M × 15%) + (earnings × proportion above $10M × 10%)

If realised earnings are negative (for example, realised losses exceed income for the year), 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?

They are not taxed. This was the most debated aspect of Division 296, and it changed materially between the draft and the final law.

The original 2023 proposal calculated earnings from the movement in a member’s total superannuation balance – which would have captured unrealised (paper) gains on assets that had not been sold. After sustained feedback from the superannuation sector, the final legislation passed in March 2026 abandoned that approach. Under the law as enacted:

• Property. An increase in the market value of a property the fund still holds is not taxed. A capital gain is only brought into the Division 296 calculation when it is realised – that is, when the property is sold.
• Shares. Portfolio value movements are not taxed. Dividends and realised gains on shares that are actually sold are included.
• Unlisted investments. Valuation movements are not taxed while the asset is held; realised amounts (distributions, sale proceeds above cost) are included when they occur.

Why valuations still matter: asset valuations at 30 June continue to drive your total superannuation balance – which determines whether you are over the $3 million threshold at all, and what proportion of your earnings is taxable. Accurate, ATO-compliant valuations remain essential to the calculation even though paper gains themselves are not taxed. 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.
• Indexed. Under the final legislation the threshold is indexed to CPI in $150,000 increments (the $10 million higher-tier threshold is indexed in $500,000 increments). This is a change from the original proposal, which had no indexation.
• 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 in 2026-27, the first Division 296 year:

Step 1 — Realised earnings:

$270,000 (no unrealised amounts are included)

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 2026-27 financial year. This is in addition to the standard 15% tax on fund earnings already assessed at the fund level. (The balance is below $10 million, so the additional 10% tier does not apply.)

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

How should funds prepare for the first Division 296 year?

The first Division 296 year is 2026-27, which starts on 1 July 2026. 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 2026 (the opening position for the first Div 296 year) and again at 30 June 2027.
• Asset valuations. Every fund asset must be valued at market value as at 30 June. Valuations determine the TSB and the taxable proportion, so they remain critical even though unrealised gains are not taxed. We coordinate this process.
• Cost base records. Because the tax works on realised earnings, the cost base history of every asset matters – it determines the size of the realised gain when an asset is eventually sold. Complete, well-documented cost base records are now directly relevant to members’ personal tax.
• 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.
• 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.
• Realised earnings records – income (interest, dividends, rent) and realised capital gains and losses, attributable to each member.
• Cost base histories for every asset, so realised gains are calculated correctly when assets are sold.
• 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 loss tracking. Where a member has negative realised earnings 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.
• Briefing materials need updating. Anything prepared before March 2026 likely describes the draft design – unrealised gains and a fixed threshold. The final law differs on both. Clients who heard the early version may be carrying the wrong impression of how the tax will affect them.
• Realisation timing visibility. Because the tax applies to realised earnings, the year in which large gains are realised now has a direct Division 296 consequence for affected members. Your administrator’s records of cost bases and disposal dates become part of that picture.
• 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 our SMSF administration for advisers page.

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).
• Only realised earnings are taxed. Increases in the value of assets your fund still holds are not taxed. Income and gains on assets that are actually sold are included – which makes accurate cost base records and disposal documentation essential.
• Accurate valuations are essential. Your 30 June valuations determine your TSB – whether you are over the threshold and what proportion of earnings is taxable. For property and unlisted assets, this may require an independent valuation. We coordinate this as part of the annual compliance cycle.
• Carry-forward losses. If your realised earnings are negative in a year, 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

Under the original draft, SMSFs holding illiquid assets faced the prospect of tax bills on paper gains with no cash to pay them. The final legislation resolved most of that concern – unrealised gains are not taxed – but illiquid assets still raise specific Division 296 issues:

• Valuations still drive the threshold and the proportion. Property and unlisted assets must be valued at market value at 30 June each year. Those valuations determine whether a member crosses $3 million and how much of their realised earnings is taxable.
• Realised gains can arrive in one large lump. When a property or unlisted asset is eventually sold, years of growth become realised earnings in a single year – potentially producing a significant Division 296 liability in that year for affected members.
• Cost base documentation is critical. The realised gain on disposal depends on the cost base history – purchase costs, improvements, and adjustments over the life of the asset. Gaps in those records flow directly into a member’s personal tax calculation.

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 and cost base histories, 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

Use the calculator below for a general estimate under the final legislation. It does not account for defined benefit adjustments, carry-forward losses, or personal 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 tax on superannuation fund earnings attributable to a member’s total superannuation balance above $3 million - an extra 15% on the proportion between $3 million and $10 million, and a further 10% above $10 million. It applies from the 2026-27 financial year onwards.

When does Division 296 start?

Division 296 applies from 1 July 2026. The first measurement date is 30 June 2027, meaning the first assessments will be issued for the 2026-27 financial year.

How is Division 296 calculated?

The calculation takes the member’s realised superannuation earnings for the year (income and realised gains - not paper gains), applies the proportion of the balance above $3 million, and taxes that amount at 15% (with a further 10% on the proportion above $10 million). See the full calculation methodology and worked example above.

Does Division 296 tax unrealised gains?

No. The final legislation passed in March 2026 removed unrealised gains from the calculation - a major change from the original draft. Only realised earnings (interest, dividends, rent and gains on assets actually sold) are included. Increases in the value of assets the fund still holds are not taxed.

Is the $3 million threshold indexed?

Yes. Under the final legislation the $3 million threshold is indexed to CPI in $150,000 increments, and the $10 million higher-tier threshold is indexed in $500,000 increments. The original proposal had no indexation; that changed before the law was passed.

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 losses 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?

Growth in the value of a property your fund still holds is not taxed. When the property is sold, the realised gain is included in the Division 296 calculation for that year - so cost base records and disposal documentation matter. Property valuations at 30 June still determine your total superannuation balance and the taxable proportion.

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

Your administrator must maintain accurate opening and closing member balances, realised earnings records, cost base histories, detailed contribution and withdrawal records, asset valuations at market value as at 30 June, TBAR lodgements, carry-forward loss 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, realised earnings and cost base records, 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), as inserted by the Better Targeted Superannuation Concessions legislation passed by Parliament in March 2026.
• ATO - Self-managed super funds - general SMSF guidance.
• Treasury - Better Targeted Superannuation Concessions - original consultation and explanatory materials (note: the final law differs from the consultation design on unrealised gains and indexation).
• 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.

Last reviewed: 11 June 2026 · Reviewed by Greg Dennis CPA, Director