For two and a half years, Division 296 was a proposal that kept changing. It is now settled law, and its first year is already under way. If your total super balance is over $3 million, or could be by 30 June 2027, this affects you this financial year.
The good news is that the law that passed is narrower than the original proposal. It doesn't tax unrealised gains, the thresholds are indexed, and SMSFs can reset the cost base of their assets so gains made before 1 July 2026 stay out of it. The catch is that some of the most useful decisions have deadlines tied to the 2026–27 SMSF annual return.
This guide sets out the law as at October 2026: who pays, how it's calculated, the key dates, the SMSF cost base election, and the planning questions worth asking. It's general information. Decisions about withdrawing, moving or restructuring super are financial product advice from a licensed adviser. We do the calculations and work with them.
Is Division 296 law?
Yes. The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 and its companion imposition Act received Royal Assent on 13 March 2026. Division 296 applies from 1 July 2026, so 2026–27 is the first year.
How it got here:
| When | What happened |
|---|---|
| 2023 | Original proposal: 15% extra tax on earnings for balances over $3 million, with earnings measured by changes in balance, including unrealised gains, and no indexation |
| 2025 | The Government announced a redesigned version: realised earnings, indexed thresholds, an extra tier above $10 million, and a start date of 1 July 2026 |
| 13 March 2026 | Redesigned law received Royal Assent |
| 1 July 2026 | Division 296 starts. Market values at the end of 30 June 2026 become the reset point for SMSFs that elect |
| 30 June 2027 | First test date for total super balances |
If you read commentary about a tax on unrealised gains, it's describing the 2023 version. That version didn't become law.
Who pays Division 296 tax?
You're in scope for a year if your total super balance (all your super interests, in every fund, including pensions) is above the large super balance threshold.
| 2026–27 | |
|---|---|
| Large super balance threshold | $3,000,000, indexed in $150,000 steps |
| Very large super balance threshold | $10,000,000, indexed in $500,000 steps |
| Rate above the large threshold | 15% of the proportion of earnings above $3 million |
| Extra rate above the very large threshold | A further 10% of the proportion of earnings above $10 million |
Which balance is tested. For 2026–27 only, it's your total super balance at 30 June 2027. From 2027–28, it's the higher of your balance at the start of the year and at the end.
What's left out of the balance. Outstanding limited recourse borrowing (LRBA) amounts are disregarded for Division 296. That's different from some other total super balance tests.
Who's excluded. You're excepted if you die during 2026–27, if you're a child receiving a super income stream at any time in the year, or if you've ever received a structured settlement contribution for a personal injury. Certain judges' and state office holders' pensions, foreign super and non-complying funds are also excluded. Defined benefit members have the tax deferred until a benefit is paid from that interest, with interest charged at the long-term bond rate.
How is Division 296 tax calculated?
There are three steps.
1. Work out the proportion of your balance above the threshold.
Proportion = (total super balance − $3 million) ÷ total super balance.
2. Work out your earnings. Each fund reports your "relevant super earnings" to the ATO. For an SMSF, the fund first calculates its Division 296 fund earnings:
- start with the fund's taxable income (or loss), which includes realised capital gains but not unrealised ones
- add back net exempt current pension income, so earnings supporting pensions are counted
- remove assessable contributions (super guarantee, salary sacrifice, deductible contributions)
- remove non-arm's length income, which is already taxed at 45%.
The fund then attributes that amount to each member. In most cases an actuary has to work out the attribution, much like the certificate many funds already get for pension income.
3. Apply the rates. Taxable super earnings = your earnings × your proportion. Tax = 15% of that, plus 10% of the share relating to any balance above $10 million. If your earnings for the year are nil or negative, there's no Division 296 tax for that year.
Worked example 1: one member, $4.5 million
Hypothetical, 2026–27.
Helen's total super balance on 30 June 2027 is $4,500,000, all in her SMSF. Her share of the fund's Division 296 earnings for the year is $270,000.
| Step | Amount |
|---|---|
| Proportion above $3 million: ($4.5m − $3m) ÷ $4.5m | 33.33% |
| Taxable super earnings: $270,000 × 33.33% | $89,991 |
| Division 296 tax at 15% | about $13,500 |
| As a share of her total earnings | about 5% |
Worked example 2: one member, $12 million
Paul's total super balance on 30 June 2027 is $12,000,000 and his relevant super earnings are $600,000.
| Step | Amount |
|---|---|
| Proportion above $3 million: ($12m − $3m) ÷ $12m | 75% |
| 15% × ($600,000 × 75%) | $67,500 |
| Proportion above $10 million: ($12m − $10m) ÷ $12m | 16.67% |
| 10% × ($600,000 × 16.67%) | $10,002 |
| Total Division 296 tax | about $77,500 |
How much does it really add?
Because the tax only applies to the proportion above the threshold, the extra tax on your total super earnings is much lower than the headline rate for most people. This is the additional rate on top of whatever tax the fund already pays (15% in accumulation, nil in pension phase).
| Total super balance | Proportion above $3m | Proportion above $10m | Extra tax as % of all your super earnings |
|---|---|---|---|
| $3.5 million | 14.29% | — | about 2.1% |
| $4 million | 25% | — | 3.75% |
| $5 million | 40% | — | 6% |
| $6 million | 50% | — | 7.5% |
| $10 million | 70% | — | 10.5% |
| $12 million | 75% | 16.67% | about 12.9% |
| $20 million | 85% | 50% | 17.75% |
Thresholds as for 2026–27. Indexation will move these over time.
That's the number to weigh against the alternatives. Money taken out of super is taxed too, often at higher rates. See the planning section below.
When is it assessed, and how do you pay?
| Date | What happens |
|---|---|
| 30 June 2026 | Market value snapshot for SMSFs making the cost base election |
| 1 July 2026 | First Division 296 year begins |
| 30 June 2027 | Your total super balance is tested for 2026–27 |
| SMSF 2026–27 annual return | Trustees report each in-scope member's relevant super earnings. The cost base election must be made by this return's due date |
| Second half of 2027–28 | ATO expects to start issuing 2026–27 Division 296 assessments |
| Within 60 days of your notice | You can elect to have the tax released from one or more super funds |
| 84 days after your notice | Payment generally due |
If you neither pay nor elect a release, the ATO can require a fund to release the amount. Interest applies to late payment. Notices go to your myGov inbox unless your tax agent has set communications to come to them.
What is the SMSF cost base election?
Small funds, including SMSFs, can elect to reset the cost base of their assets to market value at the end of 30 June 2026, for Division 296 purposes only. The aim is to keep gains that built up before Division 296 started out of the tax.
How it works:
- All or nothing. It covers every CGT asset the fund held at the end of 30 June 2026. You can't pick assets.
- Division 296 only. The fund's normal income tax cost bases don't change. The fund keeps two cost bases for each asset. The acquisition date doesn't change, so the one-third CGT discount for assets held over 12 months isn't affected.
- Deadline. It must be made by the due date of the fund's 2026–27 annual return, in the ATO's approved form.
- Not lodged, but kept. The election isn't sent to the ATO. Keep it, with the valuations, for five years after the last CGT event for those assets.
- Irrevocable. Once made, it can't be undone.
- Available regardless of balance. Any SMSF can elect, even if no member is over $3 million today. Large APRA funds can't reset; they use a phased transitional method instead.
Should your fund make the election?
| Your fund's position at 30 June 2026 | Likely effect of electing |
|---|---|
| Assets with large unrealised gains, member over (or likely to go over) $3 million | Usually helpful: those gains are kept out of Division 296 when sold |
| Assets mostly showing unrealised losses | Can work against you: resetting a loss-making asset lowers its Division 296 cost base, increasing future Division 296 gains |
| Fund has carried-forward capital losses | Check carefully: electing can mean those losses aren't available for Division 296 purposes |
| No member near $3 million, and none likely to be | Low value now, but cheap insurance if a death benefit or growth could push someone over later |
| Property or unlisted assets | You'll need a supportable market value at 30 June 2026. Get it done before the evidence goes stale |
Watch out: The election is fund-wide and permanent, and the deadline is tied to a return that may be lodged in early 2028. Don't let it slide to the week of lodgement. Valuations for 30 June 2026 are easiest to get now.
What planning should people with large balances consider?
There's no one answer here, and some popular reactions make things worse. These are the questions we work through with clients and their advisers.
1. Is taking money out actually cheaper?
Often not. For Helen in the example above, Division 296 adds about 5% on her total super earnings. Outside super, the same earnings may be taxed at up to 47% in her own name, at 30% in a company, or through a family trust that may face a proposed 30% minimum tax from 1 July 2028 (that's a Bill, not law). From 1 July 2027 the 50% CGT discount is replaced by indexation for individuals and trusts on growth from that date, which is law. Model the alternatives before withdrawing anything. Our guide to the 30 June 2027 tax changes covers the outside-super side.
2. Can balances be evened out between spouses?
Each person has their own threshold. A couple with $5 million in one name and $1 million in the other has $2 million exposed; split $3 million each, they'd have nil. Getting there takes time: contribution splitting is limited to 85% of the previous year's concessional contributions, and re-contributing withdrawals is limited by the non-concessional cap, which is nil once the receiving spouse's balance reaches $2.1 million. See contributions and caps.
3. When are gains realised?
Because SMSF earnings follow realised income and gains, the year an asset is sold matters. A large sale in a year when a member is well above $3 million attracts more Division 296 than the same sale in a year when they're under it. Don't let the tax drive an investment decision, but don't ignore it either.
4. Does the first test date help?
For 2026–27 only, the test uses the balance at 30 June 2027 alone. Members already drawing pensions or eligible for lump sums may find their balance at that date matters more than usual. From 2027–28 the higher of the opening and closing balances is used, so the effect of any one date fades.
5. What happens on death?
A reversionary pension or a death benefit can lift a surviving spouse above $3 million overnight. Look at death benefit nominations and Division 296 together, especially where adult children could receive some benefits directly.
6. Does borrowing change anything?
Outstanding LRBA amounts are excluded from your total super balance for Division 296. If your fund has a loan, make sure the balance used in your projections reflects that.
Mistakes to avoid
- Withdrawing large sums on reflex, then paying more tax outside super than Division 296 would have cost.
- Assuming pension phase is exempt. Pension earnings count.
- Missing the cost base election because nobody owns the deadline.
- No 30 June 2026 valuations for property or unlisted assets.
- Forgetting the spouse. Planning one member's balance in isolation.
- Ignoring death benefits that will push a survivor over the threshold.
- Relying on commentary about the 2023 proposal, which isn't the law.
How BPAG helps with Division 296
We prepare SMSF accounts and annual returns and coordinate the independent audit with an approved SMSF auditor. From 2026–27, that includes Division 296 reporting. See our SMSF accounting and audit service.
- Exposure check: our super and SMSF agent estimates each member's proportion, earnings and Division 296 tax from the fund's figures; your accountant reviews the numbers and explains them.
- Cost base election: we model electing against not electing, using 30 June 2026 values, and prepare the election for the trustees to sign.
- Reporting: we work with the fund's actuary on member attribution and report relevant super earnings in the annual return.
- Assessments: when the notice arrives, we check it against the fund's report and help you choose how to pay.
Agents draft, qualified accountants review and sign off, and nothing reaches you or the ATO without a person approving it.
Decisions to withdraw, re-contribute, start or stop pensions, or wind up an SMSF are financial product advice. A licensed financial adviser (AFSL holder) makes those recommendations, and we give them the tax modelling. If you're weighing up whether an SMSF still makes sense with Division 296 in place, read our comparison of SMSFs and industry funds, or go back to our self managed super fund guide.
Frequently asked questions
Does Division 296 tax unrealised capital gains?
Not under the law as passed. The original 2023 proposal would have taxed changes in balances, including unrealised gains, but that version did not proceed. For SMSFs, Division 296 earnings start from the fund's taxable income, which includes realised capital gains, then add back exempt pension income and remove contributions and non-arm's length income.
Is the $3 million threshold per person or per couple?
Per person. Each member's total super balance across all their funds is tested separately. A couple with $2.5 million each, $5 million in total, is outside Division 296 for now.
Does the $3 million threshold go up?
Yes. Both thresholds are indexed to CPI: the $3 million threshold in $150,000 steps and the $10 million threshold in $500,000 steps. For 2026–27 they are $3 million and $10 million.
Does my fund pay Division 296 tax?
No. It's assessed to you personally, like Division 293 tax. You can pay it from your own money or elect, within 60 days of the notice, to have it released from one or more of your super funds. The SMSF's role is to calculate and report your share of the fund's earnings.
Does Division 296 apply if I'm in pension phase?
Yes. Your total super balance includes your pension accounts, and earnings that are tax-free in the fund because they support a pension are still counted for Division 296. Moving money into pension phase doesn't avoid it.
What happens to Division 296 when a member dies?
A member who dies during 2026–27 is excluded for that year. Death benefits can also push a surviving spouse over the threshold, for example where a reversionary pension continues to them. That's a reason to plan nominations and Division 296 together.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.