After three years of negotiations, the Labor Government’s Division 296 “Better Targeted Superannuation Concessions” has officially passed the Senate and been signed into law.

Set to commence on 1 July 2026 (12 months later than originally planned), there have been significant changes to the original proposal that we outlined in our June 2025 newsletter here.

The overall aim of the law is unchanged, which is to roll back the concessions within the superannuation environment for total superannuation balances (TSB) over $3 million.  However, after strong opposition from industry bodies and media scrutiny, the Government has accepted the flawed nature of the original plan and made some practical changes:

Improvements

• The unprecedented proposal to tax unrealised capital gains has been removed. The additional tax will now be calculated on a realised earnings methodology – refer below for further explanation;
• The portion of the capital gain that was accrued prior to the start date of 1 July 2026 can be exempted from the new realised earnings calculation via a new CGT relief form;
• The thresholds are now going to be indexed in line with CPI. This indexation will occur in increments ($150,000 increase to the $3 million threshold and $500,000 increase to the $10 million threshold).

Surprises

• An additional threshold for total super balances over $10 million has been introduced. This will be an extra 25% tax on the “earnings” associated with the proportion of the member’s total super balance that’s over $10 million.
• The test balance is now the greater of your balance at 30 June or 1 July of the relevant financial year – except for the first year 2026/27, where it is only the ending balance at 30 June 2027. This is to provide opportunity to reduce the amount above the cap in the first year.

The Tax Rate

There are two rates:

1. 15% tax on the proportion of the super fund earnings that relates to the individual’s super balance over $3 million.
2. An additional tax of 10% is charged on the proportion over $10 million.

This is in addition to the normal tax paid by the super fund of 15%. Earnings over $3 million are effectively taxed at 30% and earnings over $10 million are effectively taxed at 40%.

How is it Calculated?

15% tax x the proportion of super over $3m x superannuation earnings

Plus 10% tax x the proportion of super over $10m x superannuation earnings

Proportions

The proportions are worked out as follows based on total superannuation balance (TSB):

(TSB – $3 million)/TSB

(TSB – $10 million)/TSB

The relevant TSB will be the higher of the start and the end of the financial year*

*As mentioned above, for the 2026/27 financial year, it is only the balance at 30 June 2027 that is applicable.

Superannuation Earnings

There are three stages to this calculation:

1. Division 296 fund earnings;
2. Relevant fund earnings;
3. Total Relevant fund earnings for the individual;

Division 296 fund earnings

The starting point for Division 296 fund earnings is the fund’s taxable investment income. This will be rent, interest, dividends (including franking credits), capital gains (discounted where relevant) etc. less tax-deductible expenses.

If a fund is in part or full pension, the exempt current pension income which is not taxable in the normal tax calculation, will be added back. Essentially Division 296 ignores account-based pensions.

Capital Gains

• Capital gains and losses are generally treated in the usual way – i.e., capital losses (even those carried forward before 1 July 2026) are offset against capital gains and only the net amount (less a 1/3rd discount for assets owned by the fund for more than 12 months) is included.
• Capital gains are included in Division 296 fund earnings in the same year they’re included in the fund’s taxable income – that means Division 296 tax could be significantly higher in years where a major asset is sold. Unlike the Government’s original proposal, however, there is no tax on unrealised capital gains.
• There is relief for capital gains accrued prior to 1 July 2026. The relief is provided via an adjustment to the cost base of all the assets an SMSF owns at 30 June 2026 (essentially they’re set at the market value at 30 June 2026 rather than their original purchase price). Note, this relief is only applicable to the Division 296 calculation. The relief isn’t automatic – SMSFs have to specifically opt in via an approved form before their 2026/27 annual return is due. The ability to opt into this relief isn’t limited to those who are already above the Division 296 tax threshold. Any fund can take advantage of it.
• The Capital Gain for Division 296 purposes will be based on this adjusted cost base if the fund opts into this relief.
• This relief is for the fund as a whole, therefore the trustees cannot elect to choose certain assets with unrealised capital gains and not include those with unrealised capital losses.

Hall Chadwick QLD will review the position of each fund based on the overall unrealised gain/loss position and discuss application for the relief where appropriate.

Relevant fund earnings

Once Division 296 fund earnings have been calculated it needs to be split between all members of the fund. Any SMSF with members impacted by this tax will need a new kind of actuarial certificate that provides the split. The actuary will work out the average value of each member’s account over the year and compare it to the average balance of the fund as a whole and calculate an actuarial percentage for each member account in the SMSF. Each member’s relevant fund earnings is then their percentage of the overall Division 296 fund earnings above.

Total Relevant fund earnings for the individual

The ATO will aggregate the relevant fund earnings across all of an individual’s superannuation accounts and treat the total as ‘superannuation earnings’.

This is the amount that will used to assess the Division 296 tax payable.

If you have an APRA regulated fund, in addition to an SMSF or just an APRA regulated fund, the funds will do the calculations and report this data directly to the ATO. So, no action is required by you.

Practical Examples

The following are two practical examples that demonstrate how this tax is calculated based on an SMSF:

1. Individual with total superannuation balance of $4.5 million

Scenario:

• Two-member fund where the other member has a balance of $2.5million for total fund balance of $7 million;
• Both members have $2 million in pension phase for a total of $4 million. Therefore 57.14% of the fund is in pension mode and this portion of the fund’s taxable income is treated as exempt current pension income;
• Taxable investment income less deductible expenses is $350,000;
• Under the normal tax calculation the exempt current pension income is $200,000 reducing the taxable income to $150,000;
• The taxable investment income includes $100,000 of capital gains (after discount), of which $75,000 was accrued prior to 1 July 2026.

Calculation

Division 296 fund earnings;      

• Under the normal superannuation tax environment taxable income is $150,000. However, for Division 296 purposes:
  • Add back the exempt current pension income of $200,000;
  • Adjust the capital gain for the portion accrued prior to 1 July 2026 of $75,000 which is excluded from Division 296
• Division 296 fund earnings = $150,000 + $200,000 -$75,000 = $275,000

Relevant fund earnings 

• For the purposes of this example, we will assume the actuarial split between each member is:
  • Member 1 – $4.5 million = $4.5 million/$7 million = 64.29%
  • Member 2 – $2.5 million = $2.5 million/$7 million = 35.71%
• Therefore, the relevant fund earnings for the individual are:
  • Division 296 fund earnings x actuarial split between members
  • $275,000 x 64.29% = $176,786

Total Relevant fund earnings for the individual

In this case we are assuming the individual only has an SMSF and there are no additional relevant fund earnings to add.

Division 296 Calculation

• Proportion over $3million = ($4.5 million-$3 million)/$4.5 million = 33.33%
• Proportion over $10million = 0%
• Total relevant fund earnings = $176,786;
• Division 296 calculation = 15% x 33.33% x $176,786
• Division 296 payable = $8,839.29

2. Individual with total superannuation balance of $15 million

Scenario:

• Two-member fund where the other member has a balance of $5 million for total fund balance of $20 million;
• Both members have $2 million in pension phase for a total of $4 million. Therefore 20.00% of the fund is in pension mode and this portion of the fund’s taxable income is treated as exempt current pension income;
• Taxable investment income less deductible expenses is $1,000,000
• Under the normal tax calculation the exempt current pension income is $200,000 reducing the taxable income to $800,000;
• The taxable investment income includes $500,000 of capital gains (after discount), of which $400,000 was accrued prior to 1 July 2026.

Calculation

Division 296 fund earnings;

• Under the normal superannuation tax environment taxable income is $800,000. However, for Division 296 purposes:
  • Add back the exempt current pension income of $200,000;
  • Adjust the capital gain for the portion accrued prior to 1 July 2026 of $400,000 which is excluded from Division 296
• Division 296 fund earnings = $800,000 + $200,000 -$400,000 = $600,000

Relevant fund earnings

• For the purposes of this example, we will assume the actuarial split between each member is:
  • Member 1 – $15 million = $15 million/$20 million = 75.00%
  • Member 2 – $5 million = $5 million/$20 million = 25.00%

• Therefore, the relevant fund earnings for the individual are:
  • Division 296 fund earnings x actuarial split between members
  • $600,000 x 75.00% = $450,000

Total Relevant fund earnings for the individual

In this case we are assuming the individual only has an SMSF and there are no additional relevant fund earnings to add.

Division 296 Calculation

• Proportion over $3million = ($15 million-$3 million)/$15 million = 80.00%
• Proportion over $10million = ($15 million-$10 million)/$15 million = 33.33%
• Total relevant fund earnings = $450,000
• Division 296 calculation (for proportion over $3million) = 15% x 80.00% x $450,000 = $54,000
• Division 296 calculation (for proportion over $10million) = 10% x 33.33% x $450,000 = $15,000.00
• Total Division 296 payable = $69,000.00

How is it Paid?

Division 296 is a personal tax, therefore the assessment will be sent to the individual. Individuals will have 84 days to pay the tax but can choose how to pay. You can pay the Division 296 tax personally or elect to have the money released from the super fund – this is the same way Division 293 is managed (additional 15% tax on concessional contributions for individuals whose income plus concessional contributions exceed $250,000 in a financial year).

What to consider and how to plan ahead

If you have a total superannuation balance over $3million or expect to in the future there are important considerations to be made:

• Opting into the available CGT relief for SMSF’s by the due date of the fund’s 2026/27 annual return. Hall Chadwick QLD will review this for all funds and be in contact with you where appropriate.
• Ensuring accurate market values for all assets, in particular property where there is no daily market price. Hall Chadwick QLD will be doing detailed reviews on the market value of these assets and where needed assist in arranging updated market appraisals;
• Moving assets out of the superannuation environment – this may be appropriate, particularly for the portion above $10 million but there are other considerations beyond Division 296. Any sale of assets will incur transaction costs and may realise a capital gain. Hall Chadwick QLD can review this for your fund and consider the tax implications of these transactions.

We strongly recommended that no decisions around transferring assets out of superannuation are made until speaking with your adviser at Hall Chadwick QLD to understand the broader tax consequences of this decision.

We also recommend speaking with a financial adviser around any investment decisions. We are happy to work with you and your financial adviser as required.

If you have any questions in relation to this tax, or if you would like to discuss further, please do not hesitate to contact your HCQ adviser.