Div 296 - What you need to know

New superannuation tax for high balances – What you need to know

Parliament has now passed legislation introducing an additional tax on superannuation earnings for individuals with large super balances. These measures are commonly referred to as the Division 296 tax and will affect members with total superannuation balances above certain thresholds.
Below we outline the key features of the new rules and what they may mean for you.

Overview of the New Tax

Commencement date

The start date has been deferred, with the new tax now applying from 1 July 2026. This provides additional time for super funds, trustees and members to prepare.

How earnings will be calculated

The tax will apply to realised earnings only, rather than year to year changes in account balances.
In practical terms:

• Earnings are based on the superannuation fund’s taxable income, adjusted to:
  • exclude contributions, and
  • include exempt current pension income and capital gains from segregated pension assets
• A portion of those earnings is then attributed to members whose Total Superannuation Balance (TSB) exceeds the relevant thresholds

Two Tier Tax Structure

The legislation introduces a graduated approach:

• Balances above $3 million
  An additional 15% tax applies to the portion of earnings attributable to the balance exceeding $3 million
• Balances above $10 million
  A further 10% tax applies to earnings attributable to balances above $10 million

Capital Gains Tax (CGT) Cost Base Reset for Small Super Funds

Trustees of small superannuation funds (including SMSFs) will be able to elect to reset the cost base of fund assets to their market value as at 30 June 2026, for Division 296 purposes only.
Key points to be aware of:

• The election is made by the trustee and must be lodged by the due date of the 2026–27 fund income tax return
• The reset applies on a whole of fund basis and is irrevocable
• The original cost base continues to apply for standard CGT purposes, meaning funds may need to maintain dual records
• Accurate and defensible market valuations will be critical, particularly where the fund holds unlisted or illiquid assets

What This Means for You

• Members with superannuation balances above $3 million should expect higher tax on super earnings from the 2026–27 financial year onwards (Caution: This doesn’t mean taking the money out of super will produce a better result)
• SMSFs and funds with unlisted investments will need robust valuation, reporting and record keeping processes, as both total super balance and realised earnings drive the calculation

Planning Considerations

For affected clients, we recommend considering the following in advance of 30 June 2026:

• Reviewing projected Total Superannuation Balances
• Ensuring up to date and well documented valuations, particularly for SMSF assets
• Understanding whether a CGT cost base reset election may be appropriate. The ability to opt-in is available to any SMSF, not just the SMSF’s that have members with a balance of more than $3 million
• Compare the alternatives to investing via Superannuation, and decide which is the better option in terms of tax

Illustrative Example

If a member has a total superannuation balance of $4.5 million and the fund earns $500,000 in 2026–27:

• One third of the balance is above the $3 million threshold
• One third of the earnings ($166,667) is attributed to the excess
• An additional 15% Division 296 tax applies to that portion, resulting in extra tax of approximately $25,000, on top of the usual 15% fund tax (or 0% if in pension phase)

Please give our friendly team a call with any questions.

If you would like advice tailored to your personal circumstances, our financial planning division, StewartBrown Advisory, offers comprehensive advice on SMSFs, retirement planning and investments.