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.
This tax would be additional to current superannuation taxation arrangements and be levied against the member though the member can nominate for their superannuation fund to pay it from their member account. Div 296 tax would be payable on that portion of a member account’s 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).
The detail is still being developed though we know some features and can reasonably extrapolate others. This FAQ will be updated as more information comes to hand.
No. At this stage it is only a proposal, but it is expected to be passed as the Government, with the reluctant support of the Greens who believe these measures do not go far enough, have the numbers to do so. In any case, the 13th October 2025 changes addressed most of the criticisms of the proposal that have prevented it from progressing to date so it will be expected to become law early in the new calendar year.
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. This data will already be available for SMSF members but generally not for members of large APRA Funds. The ATO will contact large APRA fund for earnings information for such members.
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 being assessed.
Note that the tax is not leved against the fund. It is levied aginst 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 three step process.
Step 1. 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 2. The ATO calculates the proportion of the TSB exceeding the $10 million threshold (if applicable)
Proportion of TSB over $10m = (TSB – $10m)/TSB
Step 3. 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.
Tax Liability = (15% x $1m x 0.8) + (10% x $1m x 0.3333) = $120k + $49,995 = $169,995
Scenario 3. Same as 1. But, on 25 June 2027 Nick withdraws $1.5 million from his member account. His 30 June balance is now $3m so he is not subject to Div 296 tax.
Yes, here is a simple Div 296 calculator for your convenience. It also includes the ability to model the effect of making a withdrawal from the member account just prior to the end of the year that Div 296 tax will be calculated.
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.
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 the measure commences on 1st July 2026 but you will only be affected if your balance is over the threshold at the end of the year.
No, there are three scenarios where members will probably be exempt from Div 296 tax based on the previous Div 296 proposal.
1. A member who dies during the financial year.
2. A death benefit 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).
3. Balances attributable to structured settlements.
If a member has a superannuation balance in excess of $3m which includes some portion, even minor, of a structured settlement payment (a personal injury compensation payment that was not counted towards their non-concessional contributions cap).
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 proposal exxplains that this will maintain their alignment with the general Transfer Balance Cap which is currently $2m as it is also indexed to the CPI but in $100,000 increments. (Note that, though this sounds OK in theory, the starting date for the indexation of the Div 296 thresholds does not align with that for the transfer balance cap. It would be better aligned if they were expressed as a multiple such that the lower threshold is 1.5 times the transfer balance cap and the higher threshold 5 times the transfer balance cap. It will be interesting to see if this is adopted during the consultation process.)
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” would seem to be a way of allowing large APRA superannuation funds some flexibility to use reasonable estimates rather than actual earnings as these might be 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.
We expect that it will be calculated on a discount basis. Super funds don’t pay tax on the whole capital gain when they sell assets they’ve owned for more than 12 months – there is a discount of 1/3rd of the gain.
At the Treasurer’s press conference, he indicated that only capital gains accrued from 1 July 2026 would be assessable for Div 296 purposes. It is very important that he keep to this commitment, but he will get some push back from the large superannuation funds that will need to deal with the software programming changes necessary to deal with the additional administration. Essentially, there needs to be a cost base applied to taxable capital gains for normal tax purposes and one that will be applied for Div 296 purposes as of 1 July 2026. 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 grandfathering, this would also be the amount included in fund earnings for the purposes of Div 296. This retrospectivity would be fundamentally inequitable as it would include the growth that occurred well before Div 296 came into effect. Under a grandfathered situation, the assessable income for Div 296 purposes would be 2/3rds of the sale price minus the value on 1 July 2026 or 2/3 x ($2m – $1.9m) = $ 66,667.
It is worth noting that
From the Treasurer’s comments, it is clear that his forward estimates were based on a grandfathered scenario. It would be tempting for him to abandon this to satisfy objections from the large APRA funds, particularly when it produces a windfall increased tax result. We must ensure that this does not happen.
Not directly but there could be an affect. 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.
Under the standard total super balance rules, the proportionate involvement of a limited recourse borrowing can be included in the total super balance of some members but, for the purpose of Division 296 tax, limited recourse borrowings were ignored under the previous proposal. We expect this exclusion to continue.
This is not yet clear and has been flagged as part of the consultation process. This is a relatively small, but select, group generally comprised of Judges in State based constitutionally protected funds and some federal politicians. This FAQ will be updated as more detail comes to light.
This measure is expected to be passed by the Parliament in February. Then, or before, we should have greater clarity on important details but let’s consider a few possible scenarios which might be discussed with your financial adviser.
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 postion 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.
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.
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.
Perhaps, but there are numerous considerations which include
Any potential change should be considered carefully to ensure that unintended consequences are avoided.