The passage of Division 296 marks one of the most significant structural shifts in Australia’s superannuation taxation framework in recent years. While the measure has been widely debated, its legislative status is now settled. The focus must shift from speculation to strategy.

For individuals with substantial superannuation balances Division 296 introduces a new layer of complexity and requires careful planning and consideration.  

What is Division 296?

Division 296 introduces an additional 15% tax on earnings attributable to the portion of an individual’s total superannuation balance exceeding $3 million and less than $10m. There will be a further 10% tax on earnings attributable to the portion of member balances above $10m (a maximum tax rate up to 40% when combined with the existing fund taxation of 15%). Importantly, this is applied at the individual level rather than at the fund level.

In practical terms:

• Up to $3m total super balance – no extra tax and the tax rate will remain at 15%
• Individuals with total super balances between $3 million and $10m will pay an additional 15% on the proportion of earnings over $3m
• Individuals above $10m will have earnings taxed at 40% for the proportion of earnings above $10m
• The measure applies regardless of whether the super is held in an SMSF, industry fund or retail fund
• The rules will begin on 1 July 2026 with assessments expected from 30 June 2027.
• Individuals will have the option to pay the liability personally or elect to release funds from their super
• During the first-year transitional rules will apply where the assessment is based solely on the balance at 30 June 2027.
• You have until 30 June 2027 to withdraw funds from super to reduce your total super balance if you wish. We recommend you seek advice before proceeding with a decision to draw funds from super
• Both the $3 million and $10 million thresholds will be indexed annually to CPI (in increments of $150k and $500k respectively), which will mitigate bracket creep.

What earnings are impacted

The tax will only apply to realised earnings that are received by the fund including interest, dividends, trust distributions, rent and capital gains. Unrealised earnings are not included.

Div 296 will apply to the fund’s taxable earnings minus assessable contributions plus exempt pension income.

Only post 30 June 2026 capital gains are to be included. Where an SMSF makes an election there will be an option to reset the cost base of assts to market value at 30 June 2026 for Division 296 purposes. This is an irrevocable election.

What Happens Next?

Key milestones and considerations include:

• A cost base adjustment will be available to all assets owned at 30 June 2026.
• An election must be made in the first year being 30 June 2027 and is on an all-asset basis – you cannot cherry pick the assets you reset the cost base for.
• The cost base reset is only available for Div 296 purposes, it does not affect the usual tax payable by the Fund.
• Valuations at 30 June 2026 will be critical to ensure member balances are not overstated. 
• Member balances should be reviewed to determine whether there is any way to equalise balances with withdrawal and re-contribution strategies.
• The ATO will calculate an individual’s Division 296 liability based on reported super balances and earnings.
• The regime will apply from 1 July 2026, with the first assessments issued after 30 June 2027.

For SMSFs in particular, valuation methodologies and documentation will come under greater scrutiny.

Strategic Considerations

The introduction of Division 296 does not necessitate immediate structural change for all affected individuals. However, it does require a reassessment of existing strategies.

Re-evaluating the Role of Super

Superannuation has traditionally been viewed as the most tax-effective environment for long-term wealth accumulation. For many, superannuation will remain a tax effective structure even with the new tax however for high balance members it may be an opportunity to review current investment vehicles and determine the most tax effective strategy.

For some individuals, Division 296 may prompt a review of broader wealth structures, including:

• The balance between super and non-super investments
• Use of companies or alternative investment vehicles
• Intergenerational wealth planning approaches

These decisions require a coordinated strategy rather than isolated adjustments.

What Should You Do Now?

A considered approach should include:

• Reviewing your current total superannuation balance and projected growth trajectory
• Understanding how Division 296 would apply under different market scenarios
• Assessing the liquidity profile of your super investments
• Revisiting contribution strategies in light of the new tax environment
• Engaging in scenario modelling to inform long-term structuring decisions

For many, the optimal strategy will not be to unwind existing positions, but to refine and future-proof them.

Final Thoughts

Division 296 is not simply another compliance obligation. It is a catalyst for more sophisticated financial decision-making.

For those impacted, the opportunity lies in approaching the change strategically rather than defensively. With the right planning, the long-term objectives of wealth preservation and growth remain entirely achievable.

At Hall Browns, we work closely with clients to navigate regulatory change with clarity and precision, ensuring that strategy evolves in step with policy.