If you have Googled Division 296 in the last couple of years, you have probably read something that is now wrong. The original 2023 proposal — the one that would have taxed unrealised gains and never indexed the $3 million threshold — is dead. What actually became law in March 2026 is a different, narrower tax. Here is the quick answer, then the full detail.
Quick answer: Division 296 is now law. From 1 July 2026, an extra 15% tax applies to the portion of your super earnings attributable to a total super balance above $3 million at 30 June. A second tier adds a further 10% on the slice above $10 million. The first test is 30 June 2027, and the first assessments will issue after that. Both thresholds are CPI-indexed, and only realised earnings are counted. Around 80,000 accounts — roughly 0.5% of Australians — are expected to be affected.
The two things everyone gets wrong (read this first)
Because the Division 296 debate ran for nearly three years, most of what ranks on Google about it describes the original proposal. Two corrections matter more than anything else in this article:
- You are not taxed on gains you haven’t made. The Treasurer’s October 2025 rework removed the taxation of unrealised gains entirely. Division 296 as enacted taxes realised earnings only — the earnings your fund actually reports, calculated on a modified taxable income basis. If your SMSF’s commercial property was revalued up $400,000 but you didn’t sell it, that $400,000 does not enter the Division 296 calculation.
- The $3 million threshold is indexed. Both thresholds move with CPI — the $3 million threshold in $150,000 increments and the $10 million threshold in $500,000 increments. The frozen-threshold bracket-creep horror story from the 2023 proposal did not survive.
If you are reading an accountant’s 2024 alert that still says otherwise, it is describing a law that never passed.
How Division 296 works
Division 296 sits on top of the normal 15% tax your super fund already pays on earnings. It is levied on you personally (not your fund), and it only touches the slice of earnings connected to the part of your balance above the threshold.
The mechanics, step by step:
- Test your total super balance (TSB) at 30 June. TSB spans all your super interests — accumulation accounts, pension-phase accounts, defined benefit interests, death-benefit income streams, and even notional interests from family-law splits. It is an ATO-wide aggregation, not a per-fund test. Amounts borrowed under a limited recourse borrowing arrangement (LRBA) are excluded.
- If your TSB exceeds $3 million, work out your fund earnings. For most people this is done by your fund: it calculates Division 296 fund earnings (a modified taxable income figure) and attributes your share, using actuarial methods where needed. The one-third CGT discount still applies inside this calculation, and the fund’s carried-forward tax losses reduce it. There is no personal carry-forward of negative Division 296 earnings.
- Apportion the earnings. Only the proportion of earnings attributable to the balance above $3 million is taxable:
Taxable earnings = fund earnings × [(TSB − $3M) ÷ TSB] - Apply the rate. 15% on the taxable amount (and a further 10% on the portion of the calculation attributable to balances above $10 million).
Two transitional and structural details worth knowing:
- 2026-27 is a transitional year: the test uses your TSB at 30 June 2027 only. From 2027-28 onwards, the test uses the greater of your opening and closing TSB — so a balance that dips back under $3 million mid-stream can still leave you liable, as the ATO’s own worked example (a $3.9 million balance falling to $2.92 million) demonstrates.
- Pension phase is not exempt. Earnings in retirement phase are normally tax-free at the fund level, so Division 296 lifts the exposed slice from 0% to 15% rather than 15% to 30%. If you assumed your pension account was invisible to this tax, it isn’t.
The official thresholds
| Your TSB at 30 June | Division 296 rate | Combined with 15% fund tax |
|---|---|---|
| Up to $3M | Nil | 15% (or 0% in pension phase) |
| $3M – $10M | +15% on the above-$3M proportion | 30% on that slice (15% in pension phase) |
| Above $10M | +15%, plus a further +10% on the above-$10M proportion | 40% on that slice |
Both the $3M and $10M thresholds are indexed to CPI ($150,000 and $500,000 increments respectively).
Worked examples (2026-27 figures)
Example 1: Just over the line — $3.4M balance
Priya has $3.4 million across two APRA funds at 30 June 2027. Her total fund earnings for the year are $200,000 (all realised).
- Proportion above $3M: ($3.4M − $3M) ÷ $3.4M = 11.76%
- Taxable super earnings: $200,000 × 11.76% = $23,529
- Division 296 tax: $23,529 × 15% = $3,529
Her fund still pays its normal 15% on the full $200,000; the $3,529 is assessed to Priya personally.
Example 2: SMSF with a property sale — $5M balance
An SMSF holds $5 million in total member balances at 30 June 2027. During the year it sold a commercial property, crystallising $250,000 of earnings (after the one-third CGT discount mechanics). Unrealised gains on the remaining properties are ignored.
- Proportion above $3M: ($5M − $3M) ÷ $5M = 40%
- Taxable super earnings: $250,000 × 40% = $100,000
- Division 296 tax: $100,000 × 15% = $15,000
This is the scenario the 2023 proposal would have punished hardest — and the enacted version treats very differently. Paper gains don’t count; only the sale does.
Example 3: Caught by both Division 293 and 296
Marcus earns $400,000 salary in 2026-27 and receives the full $30,000 concessional contributions cap. His TSB is $3.5 million and his fund earnings are $210,000.
- Division 293: income + concessional contributions = $430,000, which exceeds the $250,000 threshold by $180,000. The tax is 15% of the lesser of the excess and the contributions: 15% × $30,000 = $4,500.
- Division 296: ($3.5M − $3M) ÷ $3.5M = 14.29% × $210,000 = $30,000 × 15% = $4,500.
- Combined extra tax: $9,000 — on top of the 15% contributions tax and 15% fund earnings tax already paid.
The two divisions stack independently and hit different things: Division 293 taxes contributions when your income exceeds $250,000, while Division 296 taxes earnings when your balance exceeds $3 million. High-income earners with big balances cop both. (Our full Division 293 guide works through that tax separately.)
How the tax is assessed and paid
- The ATO assesses you personally after 30 June — it is not withheld by your fund.
- You have 84 days from the assessment to pay.
- You can elect a release authority (within 60 days) to have the amount paid from your super, or pay it from personal funds. The tax itself is not deductible, and general interest charge applies if you pay late.
- Defined benefit members get a deferral: the liability sits in a debt account accruing at the 10-year bond rate (around 4.5%) and becomes payable when the first benefit is paid.
You can model the fund-level side of these numbers with our super tax calculator, and the personal-tax side with the income tax calculator.
Who is exempt
- Death before year-end: if you die before 30 June, there is no Division 296 liability for that year. From 2027-28, death-year amended assessments apply.
- Child recipients of death-benefit income streams and structured settlement recipients are permanently excluded.
- Constitutionally protected funds and certain pre-1-July-2025 judges’ interests have their earnings excluded (though the balances still count toward TSB).
The SMSF angles nobody else explains properly
1. The one-off cost-base reset (deadline: generally 15 May 2028)
SMSFs get a one-off, irrevocable, all-or-nothing election to reset the cost base of all CGT assets held at 30 June 2026 to their market value at that date — for Division 296 purposes. The election is due by the lodgement date of your 2026-27 SMSF annual return (generally 15 May 2028), and the ATO’s election form was still in development as of September 2026.
Class data shows 95.4% of in-scope funds sit on positive unrealised CGT positions (averaging around $620,000 in gains), so for most affected SMSFs the reset is attractive: it wipes pre-1-July-2026 gains out of future Division 296 earnings. But there is a trap — resetting can crystallise a substituted capital loss that is then wasted, because the loss can’t be used the way you’d expect. Model both paths before electing; “all-or-nothing” means you can’t cherry-pick the winners.
2. Valuation discipline now matters every 30 June
Your TSB — and therefore your liability — turns on 30 June valuations. For SMSFs holding direct property or unlisted assets, that means defensible, documented valuations every year, not just when the auditor asks. A sloppy valuation doesn’t just risk an audit adjustment; it directly moves your Division 296 bill.
3. The multi-member attribution trap
In an SMSF with multiple members, earnings are attributed actuarially. Practitioners have flagged a nasty edge: one member’s large withdrawal can shift the attribution so the remaining member bears a bigger share of fund earnings for Division 296. Equalising or rebalancing strategies inside SMSFs need the attribution maths checked, not just the TSB maths.
Common mistakes
- Believing pre-October-2025 articles. Anything written about the 2023 proposal — unrealised gains taxed, frozen $3M threshold — describes a law that never passed. Check the publication date of everything you read.
- Assuming pension-phase balances are exempt. They count toward TSB and their earnings attract 15% Division 296 on the exposed slice.
- Testing one fund at a time. TSB aggregates everything — your retail fund, your SMSF, your old employer’s fund you forgot about. The ATO sees all of it through fund reporting.
- Confusing Division 293 with Division 296. Different triggers (income vs balance), different targets (contributions vs earnings), and they stack.
- Withdrawing rashly to duck under $3M. Money taken out of super is generally taxed at marginal rates (up to 47%) and selling assets to fund the withdrawal triggers CGT — often worse than the 15% Division 296. Run the numbers before acting.
- Sleeping on the cost-base reset deadline. The election is one-off and irrevocable, due with the 2026-27 return. Miss it and the pre-July-2026 gains stay in the Division 296 base forever.
What to actually do (and when)
- Now → 30 June 2027: confirm your TSB across all funds; get SMSF valuations in order; model the cost-base reset election (including the wasted-loss trap); review contribution strategies against the 2026-27 contribution caps.
- Couples: equalisation strategies — spouse contributions, contribution splitting — can keep both partners under $3M. Our salary sacrifice guide covers the contribution mechanics.
- After 30 June 2027: expect the first assessments; you will have 84 days to pay or 60 days to elect a release authority.
- By 15 May 2028 (typical): SMSF cost-base reset election due with the 2026-27 annual return.
- Estate planning: review death-benefit nominations with the death-year assessment rules in mind — your family can face a final Division 296 bill.
If you’re weighing super against other first-home strategies, our First Home Super Saver guide covers the other end of the super spectrum.
FAQ
Am I taxed on gains I haven’t made?
No — not under the enacted law. Only realised earnings (as calculated by your fund on a modified taxable income basis) count. This was the most controversial part of the 2023 proposal and it was removed in the October 2025 rework.
Should I withdraw super to get below $3 million?
Usually not, on the maths alone. Withdrawals from a taxed fund are generally fine after 60, but getting the money out often means selling assets (triggering CGT) and the cash then earns returns taxed at your marginal rate — up to 47%. Compare that against a 15% Division 296 on a slice of earnings before deciding. Get licensed advice for your situation.
When is the SMSF cost-base reset actually due?
By the lodgement date of your SMSF’s 2026-27 annual return — generally 15 May 2028. The election is one-off, irrevocable and all-or-nothing, and the ATO’s form was still in development as of September 2026, so watch for its release.
My accountant only sees my SMSF — how does the ATO know my total balance?
Every APRA fund and SMSF reports member balances and contributions to the ATO. Division 296 aggregates your TSB across all funds centrally — your accountant’s limited view doesn’t limit the ATO’s.
Does my family cop a final bill when I die?
If you die before 30 June in a given year, there is no Division 296 liability for that year. From 2027-28, death-year amended assessments can apply, so this belongs in your estate planning conversation.
How is Division 296 different from Division 293?
Division 293 adds 15% to concessional contributions when your income plus contributions exceed $250,000. Division 296 adds 15% to earnings attributable to balances above $3 million. They are independent and they stack — our worked Example 3 above shows someone paying both.
The bottom line
Division 296 is narrower and fairer than the proposal that dominated the headlines: realised earnings only, indexed thresholds, and a second tier at $10 million instead of a cliff. But it is still a 15% surcharge on a slice of earnings that compounds every year — and the transitional 2026-27 year, the one-off SMSF reset, and the greater-of opening/closing balance rule from 2027-28 all reward people who plan before 30 June 2027 rather than after the first assessment lands.
General information only — not personal financial or tax advice. Division 296 interacts with your whole tax position; speak to a licensed adviser before acting. ATO guidance was still being finalised at the time of writing; figures above reflect current published guidance for 2026-27.
