Division 296: revised $3m+ super tax

By Daniel Butler, Bryce Figot, Fraser Stead on 02/02/2026 in Announcements, ATO, Federal Budget, SMSF cases & decisions, SMSF compliance, SMSF strategy, Succession planning, Taxation, Trustee education

The Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2025 was released on 19 December 2025 for members with superannuation balances over $3 million. The closing date for feedback on the revised exposure draft legislation was 16 January 2026 and The Tax Institute made a comprehensive submission on the revised provisions.

The revised provisions include substantive changes and policy shifts that requires a careful review to understand how they will apply to superannuation fund members, especially those with self-managed superannuation funds (SMSFs).

The draft provisions provide the legislative framework for raising the new tax and rely heavily on regulations that are yet to issue. The start date is still planned to take effect from 1 July 2026.

Key (revised) criteria for the new Div 296 tax

Broadly, for SMSFs beyond the first, transitional, year of 2026–27, the revised Div 296 tax is designed with the following features:

an additional 15% tax will apply reflective of the proportion of the member’s total superannuation balance (TSB) that exceeds $3 million;
an additional 10% tax will apply reflective of the proportion of the member’s total superannuation balance that exceeds $10 million;
for members with a TSB of more than $3 million but less than $10 million, this can result in a total overall nominal rate of 30% on a member’s taxable superannuation earnings (TSE), ie 15% income tax to the fund trustee and 15% Div 296 tax on the proportion of TSE above $3 million payable by the member;
for members with a TSB of with more than $10 million, this can result in a total overall nominal rate of 40% on a member’s TSE, ie 15% income tax to the fund trustee, 15% Div 296 tax on the proportion of TSE above $3 million payable by the member, and 10% Div 296 tax on the proportion of TSE above $10 million also payable by the member;
a member can access money from their superannuation fund to pay the Div 296 tax via a release authority that will be provided by the ATO with each Div 296 assessment. Alternatively, the member can pay the tax from their own resources;
the $3 million and $10 million thresholds will be based on the greater of the member’s TSB at the start, or at the end, of the financial year (FY). These thresholds will also be indexed by the consumer price index in increments of $150,000 for the $3 million threshold and $500,000 for the $10 million threshold;
the ATO will notify trustees when they have ‘in-scope’ members who are likely to have a Div 296 liability and the fund will report attributable TSE;
a member’s ‘relevant superannuation earnings’ for a ’superannuation interest’ is the amount attributable to the interest of the ‘Division 296 fund earnings’;
a member’s total superannuation earnings must be added up having regard to the relevant superannuation earnings from each superannuation interest maintained in each superannuation fund, eg, an SMSF member may have an interest in a large APRA fund, a retirement savings account and an SMSF, and the attributable earnings for that member from each fund need to be aggregated by the ATO and a Div 296 assessment issued;
the Div 296 fund earnings under the revised provisions are based on a taxable income methodology for each fund and they are broadly calculated as follows:
- start with the amount of the fund’s relevant taxable income for the FY (or loss);
- deduct assessable contributions;
- add back net exempt current pension income (broadly, exempt pension income less deductions under s 8-1 of the Income Tax Assessment Act 1997 (Cth); and
- deduct any non-arm’s length income; and
for SMSFs, it is proposed that regulations will issue requiring an actuarial certificate each FY confirming the attributable TSE for each in-scope member based on a proportionate approach, time-weighted where a member is only a member for part of a FY, in a similar manner to how exempt current pension income is currently calculated. As an integrity measure applicable for SMSFs, the regulations will not allow for specific investment portfolios or asset segregation and will reflect a proportionate share. The additional guidance on the proposed regulations for the better targeted superannuation concessions included the following formula:

a member’s TSE is the amount of their total superannuation earnings multiplied by the relevant proportion that the member’s TSB exceeds the $3 million threshold; and
for members with more than $10 million TSB, a similar formula applies in respect of calculating a member’s ‘very large superannuation balance component’ based on the member’s total superannuation earnings multiplied by the relevant proportion that the member’s TSB exceeds the $10 million threshold.

Transitional arrangements

There are three key transitional arrangements that apply.

2026–27 FY relies on 30 June 2027 TSB

For the 2026–27 FY, the member’s TSB is counted at the end of the FY on 30 June 2027. Thus, if a member’s TSB exceeds the relevant $3 million or $10 million threshold on 30 June 2027 and they have attributable TSE, they will be subject to Div 296 for the 2026–27 FY. As discussed above, after the transitional 2026–27 year, the TSB will be assessed as the greater of the member’s TSB at the start, or at the end, of the FY. Thus, members may choose to withdraw money or assets from superannuation prior to 30 June 2027 to seek to fall below the relevant threshold. However, after the transitional year, if the starting balance exceeds the relevant threshold, a subsequent withdrawal may not assist.

Adjustment of cost base of assets held at 30 June 2026

As the Div 296 tax is to apply from 1 July 2026 and reflects a taxable income methodology where only realised capital gains are taxed, a CGT adjustment is available where a fund can choose to adjust all CGT assets that are held by the fund as at 30 June 2026 to market value to broadly lock out any unrealised gains accrued on those assets prior to 1 July 2026. This adjustment differs from prior CGT resets such as the reset allowed in mid-2017 for transfer balance purposes where an asset-by-asset reset was available. One major issue with the adjustment to all CGT assets being adjusted, rather than an asset-by-asset choice, is that assets with capital losses will be reset with a lower cost base.

A new death tax?

If an individual dies before the last day of the 2026–27 income year, they are not liable to pay Div 296 tax for that year (Sch 1, item 25, Subdiv 296-A, s 296-1(3) of the proposed Income Tax (Transitional Provisions Act 1997 (Cth)). In contrast, s 296-30 of the prior draft (now defunct) Div 296 legislation stated in s 296-30: ‘exception — death that you are not liable to pay Div 296 tax for an income year if you die before the last day of the year’. Thus, moving forward, the revised Div 296 will be a new form of death tax given that, when a person dies, their legal personal representative (LPR) remains liable for their tax and other liabilities.

This is a big change because, under the prior draft legislation, if you died before any 30 June in the future, you would get out of any future Div 296 tax (but not your other tax liabilities). It was quite straightforward — as long as you died before 30 June. However, under the revised provisions, you will only be released from any future Div 296 tax for the 2026–27 year.

Other changes impacting a person’s death or succession

The revised provisions will also have the effect of accelerating the time that Div 296 tax will be paid by a surviving spouse, given the surviving spouse will be tested based on their higher TSB at the start, or the end, of the FY. However, for the 2026–27 FY, the $3 million and $10 million thresholds will be measured at the end of the financial year.

For example, if dad dies on 1 January 2028 with an automatically reversionary pension in favour of mum, and each has $2 million in superannuation, mum will be assessed to Div 296 tax in respect of the 2027–28 FY as she will have more than $3 million at the end of that FY, provided she also derives some total superannuation earnings in respect of her interests which includes the reversionary pension transferring to her on dad’s death.

Under the prior draft legislation, s 296-55(1)(d) provided:

“(d) subject to subsection (3), the total superannuation balance value, on a day during the year on which you start to be a retirement phase recipient of a superannuation income stream because of the death of another person, of the superannuation interest in a superannuation plan that supports the superannuation income stream;”

Broadly, this resulted in the TSB value of dad’s automatically reversionary pension not being counted in mum’s adjusted TSB at the end of the year during the FY that dad died. Rather, it was treated as a contribution which was subtracted from the TSB figure when calculating superannuation earnings under the prior draft legislation.

The pension balance from dad’s reversionary pension would, however, be counted in mum’s TSB in the following FY assuming that no withdrawal was made prior to the start of the next FY under the prior draft legislation. Moreover, s 296-50(1)(b) of the new draft legislation also confirms the fact that a person’s total superannuation earnings include earnings in relation to an automatically reversionary pension.

Section 296-50 states:

“(1) The amount of your total superannuation earnings for an income year is the total of your relevant superannuation earnings for the year for:

(a) each superannuation interest of yours that you have at any time in the year; and

(b) each superannuation interest that supports a superannuation income stream of which you are a retirement phase recipient at any time in the year because of the death of another person.”

Thus, the calculation of superannuation earnings will become more complicated as there will be a need to calculate the earnings of the two interests and pro-rate those earnings for the time period that the reversionary pension was paid to mum for that FY.

This may give rise to a member considering whether they should change their pension nominations so that they no longer revert to their surviving spouse. Moreover, the revised provisions will also likely encourage members with legacy pensions to consider whether they can exit such pensions.

The revised provisions can also render a member liable for Div 296 tax for a number of years after they die as the payment of a death benefit may be delayed due to a legal dispute or difficulty in realising assets. In this instance, the deceased’s LPR will be liable for the Div 296 without necessarily being able to access any money from the superannuation fund to pay the tax.

This could give rise to considerable hardship where a deceased member’s LPR cannot access the superannuation money to pay the Div 296 tax as the superannuation fund trustee is in a dispute with the beneficiaries claiming the death benefit.

Conclusion

We await the revised draft legislation and the supporting regulations to issue. The government is keen on passing this legislation as soon as possible given the proposed start date for the Div 296 tax was originally 1 July 2025, which, due to the backlash against the prior legislation (especially with taxing unrealised gains and with no indexation of the $3 million threshold), has been deferred to 1 July 2026.

Until the legislation and regulations are finalised, we need to be careful and issue a disclaimer that the law is yet to be finalised. We will be monitoring developments and naturally we would be pleased to assist if there are any queries. We will also be presenting webinars on Div 296, so stay tuned!

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