Division 296: Treasury’s Pre‑Christmas Drop and What It Means for SMSFs

Last Christmas brought more than leftovers and cricket — it also delivered Treasury’s draft legislation for the new Division 296 tax. True to form, the release landed on what was, for many of us in the profession, the last working day before the break. Now that the dust has settled, it’s worth taking a clear-eyed look at what was proposed, what’s changed, and what SMSF trustees and advisers need to prepare for.

What Treasury Confirmed

The Government didn’t deviate from the original blueprint:

• Thresholds: The $3 million and $10 million thresholds remain as announced and will be indexed annually.

• Tax Rates:

  • An additional 15% on earnings attributed to balances above $3 million.

  • A further 10% (making 25% in total) on earnings attributed to balances above $10 million.

Treasury continues to describe “headline rates” of up to 30% and 40%, but this simply reflects the existing super tax of up to 15% plus the new Division 296 rates.

• A new layer of tax:

  
  

  Division 296 will be a personal tax, assessed at the member level, although it can be paid from super. All other super tax rules stay exactly as they are.

A More Sensible Definition of Earnings

One of the biggest improvements in this draft is the removal of unrealised gains from the earnings calculation.

Under the revised design:

• Only realised capital gains count.

• Ordinary CGT rules apply — including discounts and the ability to offset carried‑forward losses.

• Unrealised movements in asset values are no longer taxed (a significant win for the SMSF sector).

The 30 June 2026 Reset

For SMSFs only, the Government has delivered on its commitment to grandfather historical gains:

• Capital gains accrued before 30 June 2026 will be excluded.

• A notional cost base equal to the 30 June 2026 market value will apply solely for Division 296 calculations.

This ensures long‑held assets aren’t penalised for past growth once the new regime begins.

An Important Warning: You Must Opt In

Accessing the 30 June 2026 capital gains relief is not automatic.

SMSFs wanting the reset must:

• Opt in using an approved form, and

• Do so by the due date of the fund’s 2026/27 tax return.

We’ve been here before — in 2017 many funds missed their CGT relief because the form wasn’t lodged, wasn’t understood, or was submitted late. The same risk exists again.

A few nuances worth noting:

• Any SMSF may opt in — even if no member is over the threshold at the time. Many will want to preserve the option for future years.

• The choice applies at the fund level, not asset‑by‑asset or member‑by‑member.

• If a new member joins down the track, they benefit from the relief too.

Importantly, this election does not affect ordinary fund tax — only Division 296.

Treasury Closes the Withdrawal Loophole

Under the earlier design, members could (theoretically) realise gains early in the year and then withdraw large sums before 30 June to reduce their Division 296 exposure. Treasury has now shut that down.

The proportion of earnings subject to Division 296 will be based on:

• The greater of the opening or closing balance for the year.

A Transitional Window Until 30 June 2027

For 2026/27 only, the calculation will use the 30 June 2027 balance exclusively.

Practically, this means any member planning sizeable withdrawals to permanently sit under the threshold has until 30 June 2027 to act.

Different CGT Adjustments for APRA‑Regulated Funds

Large funds won’t use a notional cost base. Instead, they will adjust their actual realised capital gains for the first four years (2026/27 to 2029/30). Regulations will determine how this works in detail.

Splitting Earnings Between Members

Once a fund calculates its total Division 296 earnings, it must allocate that amount to members.

For SMSFs:

• The method will be set out in regulations, but Treasury has already indicated a special actuarial certificate will likely be required.

• This may be the first time accumulation‑only SMSFs need actuarial input.

Notably, SMSFs with member‑specific asset pools won’t be allowed to allocate earnings based on those pools — the standard method must be used.

Large funds will instead apply a “fair and reasonable” allocation.

What Happens Next?

The consultation period closed quickly — mid‑January — which signals the Government’s intention to legislatively lock in this framework early in the year. Improvements to LISTO were bundled into the Bill to broaden support.

From here, the industry will be spending much of the first quarter interpreting detail, modelling outcomes and designing strategies.

If you wan to discuss your SMSF get in contact with us directly - Contact Us.