Division 296 is now law: what SMSF trustees should know

In earlier notes from this desk we looked at cost-of-living settings and the broader policy backdrop trustees were already working through — what was holding, what was easing, and what had a date on the calendar. Division 296 sits in that same picture. It is now law, with thresholds, reporting mechanics, and a 1 July 2026 start date that funds will need to plan around.

Division 296 is now law. It introduces extra tax on earnings for people with very high super balances from 1 July 2026. Here we explain what the new law changes, how it impacts super funds and their trustees.

Division 296 targets high super balances

From 1 July 2026, Division 296 applies only to people with a total super balance above three million dollars. A higher rate then applies to the portion above ten million dollars. Total super balance is the sum of all Australian super interests at set reporting dates — including self-managed super funds, industry and retail funds, and defined benefit interests.

If your total super balance is below three million dollars, Division 296 does not apply. Earnings in accumulation continue to be taxed at fifteen per cent inside the fund.

Extra tax on slices above three and ten million

Super earnings in accumulation are taxed at fifteen per cent at the fund level. Division 296 adds a separate tax at the member level on the earnings that relate to the part of the balance above the thresholds.

For the slice of your balance between three and ten million dollars, Division 296 adds fifteen per cent on the relevant earnings, so the effective rate on that slice becomes thirty per cent. For the slice above ten million dollars, Division 296 adds twenty-five per cent on the relevant earnings, so the effective rate on that top slice becomes forty per cent. The ATO will assess the Division 296 tax to you personally, and you can either pay from your own funds or apply to release money from your super funds.

All Australian super interests are counted

The thresholds are tested against your total Australian super interests, not against each fund in isolation. This includes balances in SMSFs, industry and retail funds, and defined benefit interests. If you hold super across several funds, the ATO combines these amounts when working out whether your total balance exceeds three or ten million dollars.

Foreign super balances are not counted for Division 296. The test is based on values that funds report to the ATO at specific times during the year, so timing and accuracy of reporting by each fund matter for members who are close to the thresholds.

Division 296 taxes realised earnings, not unrealised gains

The final form of Division 296 taxes realised earnings only. Earnings include interest, rent, dividends, and realised capital gains after an asset is sold or otherwise disposed of. Earlier proposals to include unrealised gains were not adopted in the law that passed.

Because only realised gains are counted, the timing of asset sales will influence Division 296 outcomes for higher-balance members. Large one-off disposals — such as the sale of a business property or a major investment — can cause Division 296 earnings to spike in the year of sale, even if other parts of the portfolio are unchanged.

Cost base reset separates pre-2026 and post-2026 growth

A one-off cost base reset is available to SMSFs and small APRA funds for Division 296 purposes as at 30 June 2026. The aim is to stop pre-1 July 2026 growth from being pulled into Division 296 when long-held assets are sold after the new rules start.

If a fund makes the election, the Division 296 cost base for each eligible CGT asset becomes its market value at 30 June 2026. This Division 296 cost base is used only for working out Division 296 earnings — not for ordinary CGT. The original tax cost base remains in place for standard fund tax calculations.

Reset election is all in and cannot be reversed

The cost base reset is optional, but it is fund-wide for eligible assets. If trustees elect to use it, they must apply it to all eligible directly held CGT assets at 30 June 2026 — they cannot apply it asset by asset. The election must be made by the due date of the fund’s 2026–27 income tax return, and once made it is irrevocable.

For Division 296 purposes, the first element of cost base becomes the 30 June 2026 market value, and earlier cost base elements are treated as nil. Future costs that would normally form part of the cost base — such as capital improvements and certain transaction costs — can still be added from that date onwards.

Property example shows impact of the reset

An SMSF buys an investment property for five hundred thousand dollars and holds it for many years. At 30 June 2026 the property value is one point five million dollars, and the fund sells it in 2030 for one point eight million dollars.

Without a reset, Division 296 could treat the full one point three million dollar gain — from five hundred thousand to one point eight million — as part of the Division 296 earnings calculation. With a reset, the Division 296 cost base becomes one point five million, so only the three hundred thousand dollar gain from 30 June 2026 to sale is counted for Division 296. For normal CGT inside the fund, the original five hundred thousand dollar cost base is still used, so the fund tax position does not change.

Reset is most useful for assets with large existing gains

The reset is most likely to help where assets already have substantial unrealised gains at 30 June 2026 and are expected to be sold at some stage after that date. That often includes long-held investment properties, business real property, and equity portfolios that have grown strongly over time. In these cases, the reset can limit Division 296 to future growth rather than decades of past gains.

Where assets have low gains or unrealised losses, the position can be more complex. Locking in a higher Division 296 cost base for all assets may affect how future losses and gains offset within the Division 296 calculation. Because the election is all in, trustees need to look across the whole fund — not only at one or two standout assets.

Trustees need data on balances, assets and valuations

Trustees with members near or above three- or ten-million-dollar balances have a planning window before 1 July 2026. A first step is to confirm current total super balances across all funds for each affected member, and to model how those balances may track over the next few years. A second step is to list assets in the fund with large unrealised gains, and consider likely holding periods and exit plans.

Reliable market valuations at 30 June 2026 will be central to any decision about the cost base reset. This is especially true for property and other unlisted or illiquid assets where there is no daily market price. Trustees will need evidence to support the values used if the ATO later reviews Division 296 calculations.

Division 296 sits within a changing super tax landscape

Division 296 is a significant change for higher-balance members, but it sits within a longer pattern of super tax adjustments. The primary purpose of super remains to support income in retirement, and even with Division 296 in place, earnings tax rates in super stay below top personal marginal rates for many people. The main task for those affected is to make sure structures and investment plans reflect the new thresholds and tax settings — rather than those that applied when their funds were first set up.

Further guidance will continue to emerge from Treasury, the ATO, and professional bodies on detailed mechanics such as forms, timing, and reporting. If you would like to understand how Division 296 applies to your super funds, and whether the cost base reset or other steps may be appropriate for your situation, we are available to work through the numbers and options with you.