The Revised Division 296

Division 296 tax will be a brand new tax that is related to superannuation but is completely separate (and on top of) all existing fund and personal taxes. The legislation is proposed to commence from 1 July 2026, with the first measurement and assessment of Division 296 tax occurring at 30 June 2027.

Importantly, It applies to realised earnings rather than unrealised gains, as was proposed in the original draft.

Division 296 tax will use two measurement thresholds:

  • For individuals with a total superannuation balance (TSB) greater than $3 million, Division 296 tax will be assessed at 15 per cent of attributable Division 296 earnings (based on the proportion of earnings that are attributable to balances in excess of $3 million)
  • For individuals with a TSB greater than $10 million, Division 296 tax will be assessed at an additional 10 per cent of attributable Division 296 earnings (based on the proportion of earnings that are attributable to balances in excess of $10 million).

To determine whether Division 296 will be assessed, an individual’s TSB will be calculated at both the start and end of the year, with the higher TSB figure being used for the assessment. This ensures that, where significant benefits are withdrawn from superannuation during a financial year and the TSB drops below the relevant thresholds, the individual still remains subject to Division 296 tax.

A specific exemption applies for the first year of operation, where the TSB is assessed at 30 June 2027 only. This will enable individuals to withdraw monies from superannuation up to this date and reduce their TSB to below $3 million if they do not want to incur the Division 296 tax.

For self-managed superannuation funds (SMSF), Division 296 earnings are calculated by adjusting the fund’s taxable income as follows:

  • Assessable contributions are deducted (as these do not represent earnings of the SMSF)
  • Non-arm’s length income (NALI) is deducted from taxable income (as this does not represent concessionally taxed income)
  • Exempt current pension income (ECPI) is added back to taxable income
  • Ordinary taxable capital gains are deducted from taxable income
  • Adjusted taxable capital gains are added to taxable income

Interestingly, adjusted taxable capital gains are calculated by resetting the cost base of your assets and investments to their market value as at 30 June 2026. This means any capital gains that built up before this date are not taxed under the new rules.