Authored by Andrew Ellem, Partner Accounting and Business Advisory
From July 1, 2026, Division 296 tax comes into effect, this is a new Tax on superannuation earnings for members whose total super balance exceeds $3 million. After more than three years in the pipeline, it is now imminent.
At its core, the tax imposes an additional 15 per cent on the proportion of earnings attributed to balances above the $3 million threshold. For balances exceeding $10 million, a further 10 per cent applies. Both thresholds are indexed to inflation, moving in increments of $150,000 and $500,000 respectively.
While the headline mechanics are relatively straightforward, the detail beneath the surface is not. Below are three areas that deserve careful attention and, in some cases, prompt action.
There Is a Window - But It Will Close
For the 2026–27 financial year only, a transitional rule applies: the proportion of super considered above the threshold will be calculated solely on your balance on June 30, 2027, not the higher of start and end of year, as the ongoing rules require.
This means members who are eligible to access their super have until June 30, 2027, to reduce their balance and potentially minimise or avoid Division 296 tax entirely for that year. Fourteen months is a reasonable runway, but the planning should begin now, not later.
For those who miss the window, the ongoing rules will apply from 2027–28: if your balance is higher at year end than at the start, that higher figure is used. Once you are in scope, you remain in scope for at least two financial years.
Action: If you have a balance approaching or exceeding $3 million and can access your super, speak with your adviser now about whether a drawdown strategy makes sense before June 30, 2026
SMSFs Have CGT Relief Available, But Must Opt In
For self-managed super funds, there is a meaningful concession available: asset growth accrued before July 1, 2026, can be quarantined from Division 296 tax calculations. In practical terms, this resets the cost base for CGT purposes to July 1, 2026, meaning only gains built up from that date are captured by the new regime.
This relief is not automatic. SMSFs must actively elect to opt in via an approved form, lodged no later than the due date of the fund's 2027 annual return - February 28, 2028. Funds that miss this deadline forfeit the relief entirely.
Importantly, the opt-in applies at fund level, not asset by asset. A fund is either in or out — there is no ability to select individual assets for the relief. This has a practical implication worth acting on before July 1: funds holding assets with unrealised losses should consider realising those losses now, before the cost base resets and the benefit of those losses is locked out.
One caveat - wash sales. The ATO will not recognise a sale where the same asset is immediately repurchased simply to crystallise a loss. The transaction must represent a genuine change in holding.
Action: Any SMSF holding assets with large, accrued gains, or with members likely to exceed $3 million in future, should be reviewing their position now and planning the opt-in election well ahead of the 2028 deadline. It should be noted that normal Capital Gains Tax is still payable on these assets even though there is a cost setting ability for Div 296.
The Death Implications Are Significant - and Often Overlooked
Perhaps the least-discussed complexity of Division 296 is how it interacts with death and estate planning, and the implications are serious.
In the financial year of death, the deceased member's balance at the start of the year is used to determine Division 296 liability. This means a member who passes away from July 1, 2027, onwards may still face a Division 296 tax assessment, and it will fall to their legal personal representative to settle it.
The complications compound from there. If super death benefits are paid to beneficiaries before the executor receives a tax assessment, the executor may have no funds left to meet the liability and will be forced to recover from those beneficiaries. In blended family situations — where a surviving spouse receives super directly while children of a prior relationship are estate beneficiaries - this can create genuine inequity and legal dispute.
The sale of fund assets to pay death benefits also increases Division 296 earnings, compounding the tax burden at exactly the wrong moment.
For members with reversionary pensions, there is an additional consideration: the deceased's pension balance is immediately added to the surviving beneficiary's super balance and counted at year end. Switching from a reversionary to a non-reversionary pension structure may be worth exploring.
Action: Anyone with a super balance approaching $3 million should review their estate planning arrangements in light of Division 296, particularly those with blended families, large reversionary pensions for both spouses, or complex beneficiary structures.
The Bottom Line
Division 296 is not a simple tax. It is a layered, nuanced regime with deadlines that matter, elections that must be lodged, and estate implications that could affect people who never anticipated being caught by superannuation tax at all.
The three areas above are not exhaustive, but a starting point. Every member's situation is different, and the right response will depend on balance size, fund structure, age, estate arrangements, and broader financial planning objectives.
If you would like to understand how Division 296 applies to your specific circumstances, reach out to our team.
At prime your wealth or business adviser can assist you in strategically navigating the complexities of Division 296, this is one of the benefits of having a full service financial services firm.
The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.
