This FAQ is for general educational purposes only and does not constitute financial advice. It is provided and maintained by SMSF Alliance.
On 28 February 2023, the Government announced a measure to reduce the tax benefits enjoyed by superannuation members with large balances which they defined as over $3m. This cap was not to be indexed. The changes were intended to commence from 1 July 2025 and to apply to member’s whose balances were over $3m at 30 June 2026 . Earnings were to include unrealised gains. These are gains, and losses, reflected in the movement in asset values rather than when the asset was sold.
After overwhelming opposition from a broad cross section of the community, including from within the government itself, multiple changes to this proposal were announced by the Treasurer on 13th October 2025. These included the introduction of an additional cap of $10m and indexation of the caps. Fund earnings would no longer include unrealised gains. The start date was extended by a year to 1 July 2026 with the first measure of total super balance to be 30 June 2027. The measure completed its passage through both Houses of Parliament on 10th March 2026. After receiving Royal Assent it will come into effect from 1 July 2026.
This tax is additional to standard superannuation taxation arrangements and is levied against the member personally, though the member can nominate for their superannuation fund to pay it from their member account. Div 296 tax is payable on that portion of a member account’s Div 296 earnings that are attributable to a balance of $3m to $10m at 15% and, for that portion attributable to a member balance more than $10m an extra 10% (25% in total).
This tax reduces the attractiveness of saving in the superannuation environment for member’s with over $3m in super. Notwithstanding this, the tax treatment of superannuation is still generally more favourable than alternative structures for a member with under $10m. Over $10m member balances are more problematic. In any case, individual consideration should always be applied. Professional advice should be sought.
This FAQ will be updated as more information comes to hand.
In the first year of operation, the 2026-27 financial year, a member will not be subject to Div 296 tax if their combined total super balance, across all super funds, is under $3m as at the end of the financial year. In future years the measure will be tested against the greater of the total super value at the previous 30th June and the 30th June in the year being assessed.
The ATO will consolidate the total super balances across all super funds for every member and identify those that will be subject to Div 296 tax. The liability will then be calculated by the ATO. This will require the ATO to know the fund earnings attributable to that member in each super fund they are in. The ATO will contact each of the member’s funds and request the member’s Div 296 earnings. SMSFs will be required to provide an actuarial certificate to verify the amount provided.
Note that the tax is not levied against the fund. It is levied against the member who will receive an assessment from the ATO. The member will be able to pay the assessment personally or instruct their superannuation fund (they can choose which one if there is more than one) to pay it on their behalf from their member account.
The calculation is a four-step process.
Step 1. The ATO determines, from the superannuation returns lodged, that a member has a collective total super balance of over $3m and requests any super funds they are a member of to provide their attributable Div 296 earnings. Note that, for an SMSF, this could be quite different to the actual earnings attributed to the member’s account, as they may have applied a frozen asset cost base at 30 June 2026 for Div 296 capital gains tax purposes. An APRA fund will provide a best estimate. Also note that, in the first year of operation, the ATO will use the member’s total super balance at 30 June 2027. In future years they will select the greater of the member’s total super balance at the 30 June of the previous year and the 30th June of the subject year. e.g. for the 2028 year calculation the ATO will take the greater of the member’s total super balance at 30 June 2027 and 30th June 2028
Step 2. The ATO calculates the proportion of the total super balance (TSB) exceeding the $3 million threshold
Proportion of TSB over $3m = (TSB – $3m)/TSB
Step 3. The ATO calculates the proportion of the TSB exceeding the $10 million threshold (if applicable)
Proportion of TSB over $10m = (TSB – $10m)/TSB
Step 4. The ATO calculates the total tax liability for all that member’s interests
Tax Liability = (15% x Earnings x Proportion of TSB over $3m) + (10% x Earnings x Proportion of TSB over $10m)
This gives effect to the two-tiered approach, applying an additional 15 per cent tax on the proportion of earnings corresponding to the TSB between $3 and $10 million, and an additional 25 per cent tax on the proportion of earnings corresponding to the TSB above $10 million.
Scenario 1. Nick has a 30 June 2027 member balance of $4.5 million. The investment earnings attributed to his account for the 2027 year are $300k.
Proportion of TSB over $3m = ($4.5m – $3m)/$4.5m = 0.3333
Tax Liability = 15% x $300k x 0.333 = $15k
Scenario 2. Jack has a 30 June 2027 member balance of $15 million. The investment earnings attributed to his account for the 2027 year are $1m.
Proportion of TSB over $3m = ($15m – $3m)/$15m = 0.8
Proportion of TSB over $10m = ($15m – $10m)/$15m = 0.3333
Tax Liability = (15% x $1m x 0.8) + (10% x $1m x 0.3333) = $120k + $33,333 = $153,333
Scenario 3. Same as for 1. But, on 25 June 2027 Nick withdraws $1.5 million from his member account. His 30 June 2027 balance is now $3m so he is not subject to Div 296 tax. Importantly, for the 2028 year and beyond, Nick’s answer would be the same as for scenario 1. as his total super balance trigger would be the greater of his total super balance at the beginning and end of the year.
We have a simple Div 296 Calculatorwhich shows the Div 296 tax applicable for the 2027 year if a member’s balance is reduced prior to 1 July 2027. We have a second, far more comprehensive modelling tool that will be released shortly.
Division 296 tax will be levied on the member personally, not their superannuation fund.
The member will have 84 days to pay the assessment, directly using their personal assets or, alternatively, by directing the ATO to take the money from their superannuation account. Where someone has multiple super accounts, they can choose the account from which the amount is withdrawn.
This can create a difficulty if the member has died before the election is made. In this situation the liability passes to the member’s estate. If the recipients of the member’s superannuation balance differ to those of the estate the estate beneficiaries could be disadvantaged. Estate planning adjustments might need to be considered.
The thresholds are applied to individual balances, not the fund balance. If you are the only member, then yes, but if there are other members then only if your member balance, when added to the super balances you have in any other funds, is over $3m at 30 June 2027.
Note that, though the measure commences on 1st July 2026 you will only be affected if your balance is over the threshold at 30 June 2027. In future years, you will be affected based on the greater of your total super balance at the beginning (30th June of the previous year) and end of the year (30th June in the year of calculation). This means that, in it’s first year of operation, you have the option to reduce your Div 296 exposure by reducing your balance. In future years, reducing your balance will not be effective in the year of the reduction as the ” greater of” test will be applied.
No, there are three scenarios where members will probably be exempt from Div 296 tax based on the previous Div 296 proposal.
1. A death benefit pension to a child
A member who at the end of the year is in receipt of a superannuation income stream paid to them because of the death of their parent (child pension).
2. Balances attributable to structured settlements.
If a member has a superannuation balance more than $3m which includes some portion, even minor ($1), of a structured settlement payment (a personal injury compensation payment that was not counted towards their non-concessional contributions cap). Note that this does not include benefits due to total and permanent disablement unless sourced from a structured settlement payment.
3. Deceased Members in the financial year after death
A deceased member WILL NOT be exempt from the tax for the year in which they have died but, if their member benefits have not been paid out in that year, their account will not be subjected to Div 296 tax in the next, or subsequent, years.
Yes. The $3 million threshold is indexed to the Consumer Price Index in $150,000 increments. The $10 million is indexed in $500,000 increments. The timing of the indexation differs from that of any other superannuation caps so these thresholds will be unique.
No. This was the case with the previous proposal but, following overwhelming criticism, the government has abandoned this methodology. It will now be assessed using ” normal tax principles”.
Earnings will include fund income and capital gains realised through the sale of investments less deductible expenses and losses. Deductible contributions are income but are ignored as they are not in consequence of the fund’s investments. The use of the phrase “normal tax principles” is a way of allowing large APRA superannuation funds some flexibility to use reasonable estimates rather than actual earnings as these are too hard for them to produce. The exempt current pension income concession that enables pension fund income and capital gains to be exempt from tax will be ignored for Div 296 purposes so a member who is fully in pension may have no income tax liability (due to the exempt current pension income concession) but will still be liable for Div 296 tax.
It will be calculated on a discount basis however the trustees of an SMSF can elect, by no later than the 2027 tax return lodgement date of the SMSF, to freeze the cost base of existing fund assets to their value at 30 June 2026.
This election is irrevocable and covers every asset in the fund, even assets that are in a loss situation. It is only for the purposes of Div 296. It does not affect the SMSF’s income tax position.
SMSF trustees will have the option to freeze the cost base of fund assets at their 30 June 2026 value. The reason this is important can be seen from the following example.
Let’s say a fund purchased a property 10 years ago for $1m. On 30 June 2026 it is valued at $1.9m and is subsequently sold in June 2027 for $2m. For fund tax purposes the assessable capital gain, ignoring any other nuances, would be 2/3rds of the sale price minus the purchase price or 2/3 x ($2m – $1m) = $666,667. Without cost base resetting, this would also be the amount included in fund earnings for the purposes of Div 296.
Large APRA funds have a different basis of calculation as they do not possess the reporting granularity of SMSFs. APRA funds will apply a factor to any capital gain amount included in Div 296 earnings. In 2026/2027 it will be 20%, increasing to 40% in 2027/2028, 60% in 2028/2029 and 80% in 2029/2030. There will be no discount applicable in any future years. This means that in the 2026-27 income year, 20 per cent of the capital gain used for the purpose of working out the fund’s total Division 296 earning is used.
Not directly but there can be an effect. The tax liability applicable to concessional contributions will NOT have an effect on earnings, as only investment earnings count, but any contribution could cause the member’s total super balance at year’s end, to breach the threshold thereby attracting Div 296 tax.
Example. Wendy has a 29 June 2027 member balance of $3m million. The investment earnings attributed to her account for the 2027 year are $200k. On 30 June she make a $300k downsizer contribution thereby increasing her 30 June 2027 total super balance to $3.3m. Had she not made the downsizer contribution her total super balance would have been $3m so no Div 296 tax would be payable but, because the contribution has taken her over the threshold, she now has a tax liability as follows.
Proportion of TSB over $3m = ($3.3m – $3m)/$3.3m = 0.0909
Tax Liability = 15% x $200k x 0.0909 = $2,727k
Div 296 tax is an additional tax on the member. It has no effect on the tax free income earned by that portion of a member’s account backing an account based pension. Where there could be an effect is if pensions, and member benefit payments generally, cause the member’s total super balance to fall below the threshold at the end of the year.
Example. Joanne has a 30 June 2026 member balance of $3.5m million. The investment earnings attributed to her account for the 2027 year are $220k. During the year she takes pension payments and lump sum drawdowns totalling $720k such that, on 30 June 2027 her total super balance is $3m. She will not be subject to Div 296 tax.
No. Limited recourse borrowings can affect a member’s total super balance for contribution cap purposes but, for the purpose of Division 296 tax, limited recourse borrowings are ignored.
There are special rules for defined benefit funds that are outside the scope of this FAQ however a member who will be subject to Div 296 tax and who has a legacy pension that is planned to be converted, should consider doing so before 30 June 2026 as there may be an adverse Div 296 effect if reserve allocations are added to the fund’s income. Professional advice should be sought.
There are special rules for constitutionally protected funds, typically providing superannuation benefits to Judges and some State employees, that are outside the scope of this FAQ however they are generally excluded from Div 296.
No, if you were to avoid this tax by reducing your total super balance to $3m you would need to do so by 30 June 2027 as the determination is made at the end of the financial year, not the beginning. If your total super balance will not be below $3m by 30 June then you will be subject to the tax and should consider your position further.
Perhaps. This involves withdrawing some of the benefits from a high balance member and contributing them for a low balance member who is under the threshold, and will remain so after the contribution. There are strict eligibility requirements and related consequences so this should not be attempted without financial advice. An additional, though more long term, strategy is contribution splitting where a member can split 85% of the concessional contributions they made in the previous year, to their spouse. Once again, there are strict eligibility conditions and professional advice should be sought.
Perhaps. If your fund holds large unrealised capital gains you may consider freezing your asset cost base for Div 296 purposes. This will enable you to use this in future years if, by virtue of contributions or investment growth, your total super balances make you subject to Div 296 tax in future years.
If your pensions are reversionary then the death of one of you may cause the survivor a Div 296 liability in that year as their total super balance will be increased by the value of the reversionary pension balance, though they might avoid this by withdrawing sufficient prior to the 30 June in the year of death. Perhaps you may consider non reversionary pensions or accept that an amount of Div 296 tax is still the most satisfactory situation.
On the death of a pensioner with a reversionary pension, the survivor becomes automatically entitled to the deceased member’s pension. This has both estate planning and tax ramifications. From a tax perspective, the surviving member’s transfer balance cap is not affected for a year so they can continue to receive the benefit of tax exempt income being generated within their superannuation fund for at least that long. Just prior to a year after the primary pensioner’s death, the reversionary beneficiary would make an adjustment to their affairs to ensure they do not breach their personal transfer balance cap. This generally involves some combination of retaining the reversionary pension and commuting sufficient of any pension the reversionary pensioner may have been receiving in their own right, back to accumulation.
Div 296 alters this consideration. Though the reversionary pensioner’s transfer balance cap is not affected for a year after the reversion, their total super balance is increased immediately. This means that they will become subject to Div 296 tax if their end of year total super balance is over $3m. As their total super balance is not measured during the year they may have time to withdraw sufficient to bring them under the limit prior to 30th June. The downside of such an adjustment is that it will lower the tax benefit gained from maximising the period in which the member’s account is in the tax free pension stage. It also assumes that there is sufficient time between the primary pensioner’s death and the 30th June for such an action to be possible. The question is, “Does it matter?” Whether a reversionary pension should be adjusted to non-reversionary will depend on each individual member’s case. The Div 296 tax impost may not be greater than the tax saving gained by maximising the pension exempt income. In any case, estate planning considerations may override other considerations. Professional advice should be sought.
Your total super balance is, by law, the net balance of your account whereas SMSF accounts generally report the gross amount. This can overinflate your total super balance. e.g. Mary is the sole member of her SMSF. It contains a property valued at $2.8m and cash of $300k. On Mary’s SMSF’s financial return her total super balance can be adjusted by the estimated costs of selling the property. This could be 5% or $140,000. This would lower Mary’s total super balance from $3.1m to $2.96m thereby removing her from any Div 296 obligation. A member’s balance can be reduced by the selling costs (and accrued fund tax) that would apply on the sale of an asset to the extent of their accounts proportional exposure to it. This could be usefully applied to the 30 June 2026 accounts to those members whose accounts are over the threshold at the end of the year.
No. Your Div 296 earnings are calculated on your prorata share of all fund’s assets and confirmed by an actuarial certificate.
A high balance member might consider withdrawing to gift an amount to children or grandchildren, on the condition that they contribute it to super, as a way of securing their financial future in a concessionally taxed environment from which they cannot prematurely withdraw. This might be their account in an existing SMSF where membership is limited to 6 members or to an account in a large superannuation fund. There are numerous issues that need to be addressed in both instances so financial advice should be sought. Of course, once you have withdrawn money from your super fund, you can dispose of it in any away you like.
Yes, but on death, the member’s total super balance is counted as $0. That means that any Div 296 tax liability will be referenced to their total super balance at the 30th June in the previous year. This ensures that life insurance payments will not trigger Div 296 tax. It also means that there is no tax attributable to death in 2026/2027 where the closing total super balance is applied.
Importantly, Div 296 will NOT APPLY in any following year but the earnings attributable to the deceased member in subsequent years will be included in their assessment for the year of death if their death benefit payout has not been finalised. This may delay the determination for some considerable time, potentially years, which will be problematic for estate executors.
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 reversionary pension arrangements that might be reconsidered in light of this.
Estate Executors will need to be careful as a Div 296 needs to be considered before the Estate has been distributed. Also, if superannuation trustees make a payment, on the death of a large balance member, directly to a beneficiary who is not a beneficiary under the Will any Div 296 tax liability would still be applied against the Estate to the detriment of the beneficiaries under the Will. Estate planning may need addressing.
Perhaps, but there are numerous considerations which include
Any potential change should be considered carefully to ensure that unintended consequences are avoided.
For members with a total super balance, across all funds, of no more than $3m the benefits of superannuation remain unchanged. For others;