Division 296 is a new tax that commenced on 1 July 2026 which imposes an additional tax on individuals with super balances above $3m, including a higher additional tax for balances over $10m.

This new tax is levied on individuals (similar to Div 293).  Individuals can choose to pay the tax personally or release the amount from their superannuation fund.

The tax applies to any individual who has a total super balance of over $3m.  It is calculated at 15% of a proportion of super earnings, and a further 10% on a proportion of super earnings for members with a total super balance over $3m and $10m respectively.

This means there is now the potential for a proportion of super earnings to be taxed at 40% – being 15% tax in super fund, 15% on proportion (if balance over $3m) and 10% on proportion (if balance over $10m).  Unlike the original draft, the $3m and $10m thresholds are also indexed over time (in $150,000 and $500,000 increments respectively), so these amounts will gradually rise in future years.

To determine whether an individual is “in scope” for this new tax, their total super balance is measured at both the start and end of each financial year.  If at either of these dates their total super balance (across all super funds) is greater than $3m, then they are considered in-scope and Div 296 will be calculated for them.  Note that a transitional rule applies for the first year the tax operates (2026–27 only): in-scope status for that year is determined solely by the total super balance as at 30 June 2027, rather than by testing both the start and end of the year.

Unlike an earlier draft version, which created a lot of publicity, this new tax does NOT tax unrealised gains.  Only realised capital gains are included in the calculation of a Fund’s Div 296 earnings.  The legislation recognises that it would be unfair to calculate the new tax on any growth of an investment or asset prior to 1 July 2026.  As such, there is CGT relief in the form of a Cost Base Adjustment specifically for the calculation of Div 296.  (The CGT relief is different for SMSFs compared to larger Superannuation Funds – retail or industry Funds).

For SMSFs, essentially the cost base for the purposes of Div 296 is adjusted to the market value as at 30 June 2026.  This relief is not automatic and must be opt in via an approved form prior to the lodgement due date of their 2027 tax return (likely mid-May 2028).  Note this timing assumes lodgement through a registered tax agent under the standard lodgment program – self-lodging funds, or those not up to date with prior returns, may face an earlier due date, so it is worth confirming the specific deadline with your fund’s tax agent.

If opting in for this relief, all investments’ cost bases are adjusted (for Div 296 calculations).  An SMSF cannot choose which assets to include and which to exclude – it is all or nothing.

Any SMSF can take advantage of this relief.  Therefore, funds whose members have not yet reached the $3m threshold can opt in, in the event that they may reach the threshold in due course.

The actual cost bases of investments do not change for the calculation of capital gains tax within the Fund’s income tax calculations.  The cost base relief is SOLEY for the purpose of calculating Div 296 earnings.

You might not think your total super balance could reach $3m, however, consider whether you could potentially inherit your spouse’s super balance in the form of a pension.  When looking at the combined super balances of a couple, the $3m threshold may be much closer than first thought.

If you’d like to discuss any of this in more detail, or more specific to your circumstances, please get in touch with Diana.