The Federal Government’s new Division 296 tax regime, which commenced on 1 July 2026, represents one of the most significant changes to the taxation of superannuation in recent years. While the rules are aimed at individuals with very large superannuation balances, their impact will be felt most acutely by members of self-managed superannuation funds (SMSFs), particularly those holding property, private investments and other assets that can be difficult to value.
What is Division 296?
Division 296 introduces an additional 15% tax on a proportion of superannuation earnings attributable to total superannuation balances (TSBs) exceeding $3 million and a further 10% tax on earnings attributable to balances exceeding $10 million (resulting in an effective tax rate of up to 40% on those earnings). The tax is assessed to the individual member and applies across the member’s total superannuation interests.
Importantly, the calculation is based on relevant superannuation earnings and movements in a member’s superannuation balance, adjusted for contributions, withdrawals and other prescribed amounts. As a result, increases in asset values may be taken into account even where those assets have not been sold.
While the additional tax is expected to affect only a relatively small number of Australians, many SMSF members with substantial balances are likely to be captured by the new regime.
The new measures will create a number of additional compliance, valuation, record-keeping and reporting obligations for SMSFs, particularly where members exceed the relevant balance thresholds. This article considers some of the possible impacts of the Division 296 regime for SMSF trustees.
Annual valuations become critical
The extent to which Division 296 may apply to a SMSF member will depend on their TSB and the earnings attributable to their interests.
SMSF trustees will therefore need robust annual market valuations of fund assets, particularly:
- real property;
- unlisted investments;
- related-party investments;
- collectables and personal use asset; and
- private company shares and unit trusts.
SMSFs holding illiquid assets such as farms, commercial property, unit trust interests, and private companies will likely face:
- greater audit scrutiny;
- heightened documentation requirements to support market value methodologies; and
- the need for more frequent independent valuations.
Additional reporting to the ATO
The new regime requires superannuation providers to report additional information to the ATO to facilitate Division 296 calculations.
This may include information regarding a member’s:
- relevant superannuation earnings;
- superannuation interest values; and
- other information required for the purposes of calculating Division 296 tax.
SMSFs should expect:
- expanded reporting requirements through existing regulatory returns;
- increased ATO data collection regarding member balances and earnings;
- greater reconciliation between member reports and fund accounts; and
- increased scrutiny of valuations and supporting documentation.
Enhanced record keeping requirements
CGT reset election
The measures provide a transitional CGT relief mechanism for SMSFs.
If trustees elected to reset CGT cost bases to market value as at 30 June 2026, they must retain records of:
- the election itself;
- cost base and reduced cost base records for each affected asset; and
- supporting valuation evidence.
Why would an SMSF make a CGT reset election?
The transitional CGT relief provisions may allow certain SMSF assets to have their cost base reset to market value as at 30 June 2026. The purpose of the election is to exclude gains accrued before the commencement of Division 296 from future tax calculations. The election may be particularly relevant for SMSFs holding assets with significant unrealised capital gains, such as property, private company shares and unit trust interests. Whether the election is beneficial will depend on the fund’s individual circumstances and should be considered as part of the fund’s broader tax and investment strategy.
Retention period
Records must generally be kept until at least five years after it becomes certain that no future CGT event could make those records relevant to Division 296 calculations. Failure to keep records may expose trustees to administrative penalties.
Member balance monitoring
SMSFs will need systems to identify members approaching the:
- $3 million Large Superannuation Balance Threshold; and
- $10 million Very Large Superannuation Balance Threshold [26018b01 | Word]
Trustees should monitor:
- contributions;
- investment returns;
- pension commencements;
- transfers between funds; and
- death-benefit pensions
because these may affect a member’s Division 296 exposure.
Defined benefit and pension interests
Where an SMSF contains defined benefit interests or prescribed pension interests:
- trustees may be required to provide information relevant to the calculation of a member’s superannuation earnings;
- additional reporting obligations may arise; and
- actuarial certificates may be required in certain circumstances.
Family law split compliance
The new TSB framework expressly recognises certain family law split interests and non-member spouse interests.
SMSFs involved in:
- family law payment splits;
- splitting orders; and
- binding agreements
will need updated documentation and valuation processes to ensure balances are correctly reported.
SMSFs most likely to be affected
The highest compliance burden will fall on SMSFs holding:
- commercial property;
- farms;
- private companies;
- unit trusts;
- large concentrated investment portfolios; and
- members whose balances exceed $3 million.
In short, while the new measures do not impose a new standalone ‘Division 296 return’ on SMSFs, they do significantly increase the importance of valuation accuracy, record keeping, member balance tracking, CGT election documentation and ATO reporting, particularly for funds with high-balance members.
How Division 296 tax is calculated when you die
Where a member dies during an income year, Division 296 may continue to apply if the member’s total superannuation balance exceeded the relevant threshold at the commencement of that year.
Any relevant superannuation earnings attributable to the member’s interests up to the earlier of:
- all death benefits being paid or distributed; or
- the commencement of a death benefit income stream
may be taken into account in the member’s Division 296 assessment.
Following death, the member’s superannuation interests are treated as having a nil value for Division 296 purposes. This ensures that any Division 296 liability is determined by reference to the extent to which the member’s balance exceeded the relevant threshold immediately before death.
Special rules apply in relation to certain defined benefit interests and other prescribed interests.
Importantly, transitional rules apply for the 2026-27 financial year. As a result, a member who dies during the 2026-27 income year will not be liable for Division 296 tax.
Final thoughts
Division 296 represents a fundamental shift in the taxation of large superannuation balances. Although only a relatively small proportion of members are expected to be directly affected by the additional tax, the new rules are likely to have broader implications for SMSFs, particularly those holding property, private investments and other illiquid assets.
The regime will increase the importance of accurate asset valuations, robust record keeping, member balance monitoring and timely reporting. SMSF trustees should expect greater scrutiny of valuation methodologies and supporting documentation, particularly where members are approaching or exceed the relevant Division 296 thresholds.
Importantly, even where a member is not ultimately liable for Division 296 tax, trustees may still need to maintain sufficient records and valuation evidence to support member balances and earnings calculations. As a result, many SMSFs may need to adopt more formal governance and compliance processes than in the past.
Early planning will therefore be important. Trustees and members with significant superannuation assets should ensure that appropriate valuation procedures, reporting systems and record-keeping practices are in place and seek advice regarding the impact of the new rules on their individual circumstances.
Contact us
If you are an SMSF trustee or member seeking further advice or assistance regarding the management of your SMSF, please contact a member of our Wills, Trusts & Estates team.
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