Division 296 Is Law: What $3M+ Super Members Must Do Now

Michael is 58, an SMSF trustee in regional Victoria. His fund holds $1.9 million in Australian shares and a $2.3 million rural property — total super balance: $4.2 million. He spent two years worrying that Division 296 would tax him on the paper increase in his land's value every single year, even if he never sold. The good news: that version of the law was scrapped in October 2025. The current law taxes realised earnings. The bad news: it is still very real, it started on 1 July 2026, and Michael has one irreversible election to make by the due date of his fund's 2026–27 annual return.

The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 received Royal Assent on 13 March 2026. It is confirmed law. Approximately 80,000 Australians — roughly 0.5% of super fund members — will be subject to an additional 15% tax on the portion of their super earnings attributable to balances above $3 million. For a member with a $4 million balance whose fund earns $480,000 in a year (12%), that means about $18,000 in extra tax.

What Is Division 296 Tax?

Division 296 is a new Part of the Income Tax Assessment Act 1997 that imposes an additional tax on super earnings above a threshold balance. It does not replace the existing 15% fund tax — it adds on top of it. (Don't confuse it with Division 293, the long-standing extra 15% on contributions for people earning above $250,000 — the two can apply independently.)

Both thresholds are indexed annually to the December quarter CPI (All Groups, weighted average of 8 capital cities). This means the $3 million threshold will gradually increase over time, protecting more members from crossing it due to inflation alone.

How Is the Division 296 Tax Calculated?

Your super fund works out your earnings; the ATO works out the tax. Your total super balance (TSB), the combined value of all your super accounts, only decides what share of those earnings is taxed. There are four steps.

1. Your fund works out your earnings for the year. Each fund calculates its Division 296 earnings (broadly its actual income: interest, dividends, rent and capital gains on assets it sold) and reports your share to the ATO. SMSFs report it in their annual return. A rise in the value of an asset the fund still holds is not included. (Defined benefit interests use a different formula.)
2. The ATO checks your total super balance. For 2026–27 it uses your balance at 30 June 2027. From 2027–28 it uses the higher of your balance at the start and at the end of the year.
3. It works out the share of your balance above $3 million. Proportion = (TSB − $3,000,000) ÷ TSB.
4. Division 296 tax = earnings × proportion × 15%. If your balance is over $10 million, an extra 10% applies to the share of earnings above $10 million.

Michael's worked example: His TSB at 30 June 2027 is $4.0M. His fund reports $200,000 of earnings for 2026–27: rent, dividends and a gain on shares it sold.

• Proportion: ($4.0M − $3.0M) ÷ $4.0M = 25%
• Earnings taxed: $200,000 × 25% = $50,000
• Division 296 tax: $50,000 × 15% = $7,500

His fund still pays its normal tax on its income. The $7,500 is assessed to Michael personally and is due 84 days after the ATO's notice. He can pay it himself or, within 60 days of the notice, elect to have it released from his super.

The Unrealised Gains Controversy — and Why It Changed

For two years (2023–2025), the original Division 296 proposal would have taxed super members on paper gains they had never actually received — using the change in fund value (including mark-to-market increases in property or unlisted assets) as the tax base. This was condemned by the Tax Institute as "an ill-conceived overreach" and created severe hardship concerns for SMSF trustees holding illiquid assets like farms and business real property.

The October 2025 revision removed unrealised gains and replaced them with the approach described above: funds calculate their actual earnings, so a rise in an asset's value isn't taxed until the fund sells it. Market values still matter in one way. They set your total super balance, which decides what share of your earnings is taxed.

The Cost-Base Reset Election — Deadline: Your Fund's 2026–27 Annual Return

This is the most time-sensitive decision for every affected SMSF member. The law lets an SMSF make a one-time election to reset the cost base of its assets to their market value at the end of 30 June 2026, for Division 296 purposes.

What this achieves: Any capital appreciation that occurred before 1 July 2026 is locked in at the new cost base and will not be included in future Division 296 earnings calculations when assets are eventually sold. For Michael's rural property — which may have appreciated significantly since he acquired it — this could be worth tens of thousands of dollars in avoided future tax.

For SMSF trustees holding only listed securities (ASX shares, ETFs), the decision is simpler — market prices are objective and readily available. The critical complexity is for funds holding unlisted assets. Begin the valuation process now if you have not already.

SMSF Trustees with Farms and Business Property

SMSF trustees holding business real property (BRP), agricultural land, or other illiquid assets were the most alarmed by the original proposal — and with good reason. The realised earnings revision reduced (but did not eliminate) the concern. Three issues remain:

1. Annual TSB valuation. The Superannuation Industry (Supervision) Act already requires annual market valuations of SMSF assets. Division 296 makes defensible valuations more critical than ever — an inflated property valuation raises your total super balance, and with it the share of your earnings that is taxed.
2. Funding the tax without selling the asset. If your Division 296 tax is $15,000 and you elect to pay it from super, the fund needs that cash. Ensure your SMSF holds enough liquid assets (cash, term deposits, listed equities) to pay within the 84-day window without a forced property sale.
3. The cost-base reset election. For trustees with long-held appreciating land, this election is almost certainly in their interest — but only if the valuation as at 30 June 2026 is accurate and well supported.

5 Steps for SMSF Trustees in 2026–27

1. Confirm your TSB. Check your total super balance across all funds via myGov → ATO → Super → Information. If your combined balance is above $3 million or approaching it, Division 296 applies or will apply soon.
2. Decide on the cost-base reset election. Engage your SMSF auditor or adviser to model whether resetting the cost base of fund assets as at 30 June 2026 is beneficial. For most funds with significant pre-2026 appreciation, it will be — but the all-or-nothing, irreversible nature requires careful modelling. The decision is due by the due date of the fund's 2026–27 annual return.
3. Commission independent valuations. If your SMSF holds property, business assets, or other unlisted investments, engage a qualified valuer for a valuation as at 30 June 2026. Valuations take time, so start well before the return is due.
4. Review your liquidity position. Ensure the SMSF holds enough cash or liquid assets to cover estimated Division 296 tax payments without forcing asset sales. Estimate the fund's yearly earnings and your balance to work out the likely tax.
5. Consider restructuring contributions or pension phase. Members in pension phase do not pay fund-level CGT on earnings, but the TSB calculation for Division 296 purposes includes all super accounts. A specialist SMSF adviser or Big 4 firm can model whether any restructuring changes your exposure.