TL;DR: From 1 July 2026, Division 296 adds extra personal tax on super earnings for members with a total super balance above $3 million. If your balance nears or exceeds that threshold, immediately model the impact, confirm your 30 June 2026 valuations, and review if a CGT cost-base election suits you before the window closes.
If your SMSF has grown significantly over the years, Division 296 is a moment that warrants a careful, clear-eyed review of your super strategy. This isn’t cause for alarm — but it is cause for action.
Division 296 applies from 1 July 2026 and affects super earnings above $3 million. With that date fast approaching, decisions regarding asset valuations and the CGT cost-base election are timely and critical.
Division 296 is a personal tax on super earnings attributable to balances above $3 million, not assessed to the SMSF but to the individual member. It imposes an extra tax on top of the current 15%.
An additional 15% Division 296 tax will be applied, bringing the combined effective rate to 30% on those earnings.
An additional 25% will apply, bringing the effective rate to 40% on earnings above 10 million.
The tax applies only to the portion of earnings linked to the excess balance — not to the whole SMSF account. A member’s position is assessed based on their total superannuation balance across all funds as at 30 June each year. If the balance is under $3 million at that date, Division 296 does not apply for that year.
Some of our clients have been surprised to find that Division 296 will apply to them personally — not to the fund. This matters for cash flow planning because the liability sits with you as a member, even if the assets are held inside the SMSF.
One of the most critical decisions SMSF trustees face is whether to make a CGT cost-base election. For assets held inside the fund, this election resets the cost base of all relevant assets to their 30 June 2026 market value for Division 296 purposes. As a result, only future growth after that date is subject to the additional Division 296 tax, and unrealised gains up to that date are effectively excluded from the new tax mix.
This CGT election applies to all relevant fund assets, not just selected ones. Trustees cannot reset the cost base of some assets while leaving others unchanged. For assets with a current market value below their original cost base, making the election resets the cost base to the lower market value. This may reduce the potential tax benefit of future losses, rather than create an immediate loss. The overall impact depends on your fund’s asset mix, so thorough analysis is crucial before proceeding.
The decision is irrevocable, so the analysis must be completed before 30 June 2026.
Get solid, defensible valuations on all SMSF assets before 30 June 2026. For funds holding property, business interests, or unlisted shares, this may require an independent valuation, and lead times are real.
Asset valuations are also likely to be a focus area for the ATO and SMSF auditors, given their direct impact on Division 296 calculations.
Mark is a 52-year-old GP with a group practice on Sydney’s North Shore. He and his wife, Rachel, are the two members of their family SMSF, which holds listed shares and a commercial property leased to the practice. Mark’s total super balance is approximately $4.8 million; Rachel’s is $1.6 million.
Division 296 applies to Mark only. Fund earnings on his super balance above $3 million attract an extra 15%, making the effective tax on those earnings 30%. Whether to make a CGT cost-base election on the significantly appreciated commercial property depends on modelled outcomes factoring in current market value, future growth, and the fund’s asset profile.
For couples with reversionary pensions in place — where the surviving spouse automatically inherits the deceased member’s pension — Division 296 has introduced a complication that many trustees haven’t yet considered.
When a reversionary pension is triggered, the surviving member’s total super balance increases immediately. If that increase pushes their total super balance above $3 million at 30 June, they become subject to Division 296 for that year — potentially catching a member who was previously well under the threshold.
This is more nuanced than it was 12 months ago. The tax benefit from keeping funds in the tax-exempt pension phase may or may not outweigh the Division 296 liability — it depends on the individual’s balance, timing, and broader estate planning intentions. Restructuring isn’t always straightforward either: depending on the fund’s deed and pension documentation, the pension can’t always simply be amended — it may need to be fully closed and restarted as a new pension.
If your SMSF has a reversionary pension, this is not a set-and-forget arrangement under Division 296. Review your pension structure and estate planning intentions before 30 June.
For clients weighing up whether to establish an SMSF, Division 296 is worth factoring in — but it doesn’t automatically make the structure less worthwhile. If your total super balance is comfortably below $3 million, it doesn’t affect you in the near term. SMSFs still offer genuine flexibility in investment strategy, asset control, and estate planning that retail and industry funds can’t replicate.
A question we hear often: “Does this mean I should wind back my super contributions?”
The answer is almost never that simple — but it’s exactly the kind of conversation worth having before making any structural decisions.
No. The tax applies only to the portion of earnings attributable to the balance above $3 million — not your total balance or all earnings. Each year is assessed independently at 30 June.
This is an important planning question — particularly where the fund holds illiquid assets like property. Speak with your SMSF accountant about release conditions and cash flow implications before the liability falls due.
Division 296 is assessed at 30 June each year. If your total super balance is under $3 million on that date, the tax does not apply for that year.
Division 296 will generally apply in the year a member dies, with the relevant portion of their balance calculated from their opening total super balance for that income year.
However, transitional arrangements mean Division 296 will not apply if a member dies on or before 30 June 2027 — the last day of the first year the tax is in operation.
For SMSF members with balances near or above $3 million, the decisions made before 30 June 2026 will shape your tax position for years to come. Model your Division 296 exposure and establish robust valuations. If you’re considering the CGT cost-base election, make sure that decision is based on proper analysis of your fund’s specific asset mix — not a default assumption that resetting cost bases is always beneficial. And if your fund has a reversionary pension, add a pension structure review to that list.
Members above $10 million, especially, should consider the stronger effective rate of 40% on earnings above that level, and whether the current fund structure remains optimal.
With over 40 years of combined experience across SMSF accounting, tax planning, and business advisory, the team at VLL Partners works with business owners across the North Shore and around Sydney to navigate these changes.
Speak with a VLL Partners SMSF accountant in Sydney to model your Division 296 exposure, assess the CGT cost-base election, review your pension structure, and ensure your valuations are in order before the window closes. Book a consultation today.
