Division 296 Tax: What SMSF Members Need to Know

What is Division 296 tax?

Division 296 tax is a new personal tax that applies to individuals whose total super balance exceeds $3 million.

It is calculated on a proportion of the individual's super earnings based on how much their total super balance exceeds the $3 million and $10 million thresholds. It applies across all Australian complying super funds, including SMSFs, retail funds and industry funds.

When does Division 296 start?

The first affected financial year is FY27, meaning the tax applies from 1 July 2026.

For FY27, the relevant balance is your total super balance at 30 June 2027. From FY28 onwards, the higher of your total super balance at the start or end of the financial year is used.

Who is affected by Division 296?

You may be affected if your total super balance is above $3 million at the relevant time. Your combined balance across all Australian complying super funds counts, not just the balance in your SMSF.

If your balance is below $3 million but growing, it is worth understanding the rules now.

What are the Division 296 tax rates?

There are 2 parts to the tax:

• 15% tax: Applies to the proportion of your super earnings that relates to the part of your total super balance above $3 million.
• Additional 10% tax: Applies to the proportion of your super earnings that relates to the part of your total super balance above $10 million.
  

The portion of earnings relating to a balance above $10 million can therefore be subject to a combined 25% Division 296 tax rate. This is separate from tax already paid by the super fund.

How is Division 296 tax calculated?

Division 296 earnings are based on an individual's share of relevant earnings from all their super funds.

This can include rent, interest, dividends, franking credits, trust distributions and realised capital gains, less deductible investment expenses. It does not include contributions or unrealised capital gains.

For SMSFs with multiple members, the fund's earnings will generally need to be allocated between members. An actuary will usually be needed to calculate each affected member's share.

Here's a simplified div 296 example:

• Total super balance: $4 million
• Super earnings: $200,000
• Proportion above $3 million: 25%
• Earnings subject to Division 296 tax: $50,000
• Division 296 tax at 15%: $7,500

This is a simplified example. The actual calculation can be more complex where a member has multiple funds, pension interests or a balance above $10 million.
We recommend working through the numbers with your SMSF accountant or a tax consultant if required.

Does Division 296 tax unrealised capital gains?

No. Division 296 tax does not include unrealised capital gains. If an asset increases in value but has not been sold, that growth is not included.

Realised capital gains can be included when an asset is sold. Capital losses and the usual superannuation CGT discount may also affect the amount included.

Capital gains adjustment for SMSFs

An SMSF can elect to make a special capital gains adjustment for Division 296 purposes.

The adjustment relates to assets held when the tax was introduced and is intended to distinguish growth that occurred before the tax applied from growth after it started. The election only affects the Division 296 calculation. It does not change the SMSF's ordinary tax position. The election has specific timing and record-keeping requirements and may apply to all eligible CGT assets held by the SMSF.

The rules are complex, so check the current ATO guidance before deciding whether to make an election.

How is Division 296 tax paid?

Division 296 tax is assessed to the individual, not the SMSF.

You can pay the tax personally or elect to release money from 1 or more super funds to pay it. You generally have 60 days from the date of the assessment to make the election, and the tax is generally due 84 days after the assessment is issued.

Should I withdraw money from super before Division 296 starts?

I might’ve been asked this question a hundred times from clients, colleagues, friends and family. It’s a fair question without a clear answer because, as always, it depends.

• Your personal tax rate on investments outside super
• CGT, stamp duty and transaction costs
• Your estate planning and death benefit position
• Whether the CGT adjustment election is relevant
• Whether you have met a condition of release
• Your long-term retirement income strategy
  

From FY28 onwards, withdrawing money during the year may not remove your Division 296 exposure because the higher balance at the start or end of the year is used.
For some people, keeping money in super may still be the better outcome. For others, a partial withdrawal or restructure may make sense. This decision needs tailored financial advice .

I don't have $3 million yet but should I be planning for Division 296?

If you're on track to reach the $3m in super mark in the coming years, there are steps you can take now to structure your super in a way that minimises the impact when it does apply.

This is where proactive planning with your SMSF accountant and financial advisor can really pay dividends down the line.

What should SMSF trustees be doing now?

1. Review total super balances across all funds to understand exposure
2. Model the tax impact using current fund earnings and balance projections
3. Assess whether moving assets to other structures can reduce the effective tax rate
4. Consider contribution and withdrawal strategies in the context of your broader tax position
5. Review estate planning to account for the interaction between Division 296 and death benefit tax
6. Speak with your advisor to map out a plan before selling assets or restructuring.

Talk to BlueRock's SMSF and Tax Experts

Division 296 is one of the most significant changes to superannuation we’ve seen, and the planning window before it takes effect is narrowing. Whether you’re a current client or looking for solid advice, our SMSF, tax and financial planning specialists can help you work through the detail.

Disclaimer: The information in this article is intended as general information only and should not be considered as advice on any matter and should not be relied upon as such. This information has been prepared without taking into account any individual objectives, financial situation or needs. You should therefore consider the appropriateness of the information before acting or seek advice before making any financial decisions.