Div 296 has just been tabled. Here’s the Bill and the Explanatory Memorandum. It will be effective from 1 July 2026, with the first assessments levied for the 2027 financial year, based on members’ total super balances at 30 June 2026.

Some of the sector feedback has been taken onboard. No doubt there will be no shortage of commentary on the finer points.

Notably there has been a change to the treatment of the Div 296 calculation for a deceased member – a matter that I touched on in my last newsletter. Div 296 will be levied on a deceased member but only on the taxable income applicable in the year of death. The Bill has achieved this by deeming a deceased member to have a total super balance of zero on death. The $3m/$10m total super balance trigger is still to be based on the greater of the member’s total super balance at the beginning or end of the year (except for the first year of operation when it will be the end year balance only) so the total super balance trigger for a deceased member will always be their balance at the beginning of the year of death thereby excluding any effect of life insurance benefits. It will also not apply at all in the following year. That means that, should the death of a member require the realisation of assets with material capital gains, the deferral of such sales until the next financial year would remove them from Div 296 assessment. Naturally, the practicality of such a deferral will depend on the date of death. Clearly, the last quarter of the year would be preferrable to the first quarter. I expect that such a situation would also be personally preferrable to the member.

Note that the total super balance for a recipient of a reversionary pension will be immediately increased by the deceased member’s pension balance which will still be counted at year’s end to determine their Div 296 liability. I expect there will be a number of reversionary pension arrangements that might be reconsidered in light of this.

An item of clarification is the treatment of franking credits. The Explanatory Memorandum provides an example. If the fund receives a franked dividend of $70, it is grossed up to $100 for taxation purposes with the $30 credit being applied to any resulting tax liability (or received as a tax refund if tax liabilities are nil). This does not change but, by way of clarification, Div 296 earnings will be based on the $100 amount.

There has been no change to the welcome Div 296 exclusions for child recipients of superannuation income streams and for individuals who have, or have had, a structured settlement contribution made in respect of them as a payment for a personal injury. There has also been no change to the exclusion of limited recourse borrowing from the calculation of total super balances for Div 296 purposes.

There will be an opportunity for trustees to freeze their asset cost bases as at their 30 June 2026 value for the purposes of Div 296 only. This decision is irrevocable and must be made by the lodgement date of an SMSF’s 2027 returns. It’s an all or nothing approach so needs to be considered on a whole of SMSF basis. It can also be made by funds that have member’s that may not be affected by Div 296 now but may be in the future. We will be providing a list of unrealised gains for all assets of all SMSFs when the time comes for this decision to be made.

We will be updating our Div 296 FAQ and Calculator to reflect these items in the near future. Note that you may elect for this calculator to be imbedded in your website, with customised wording and formatting, should you wish. Just contact me at dbusoli@smsfalliance.com.au.