2026-27 Federal Budget & Division 296

What this means for your Self-Managed Super Fund

Division 296 is now law and starts 1 July 2026. Balances over $3 million face an additional 15% tax on earnings — with another 10% on top for balances over $10 million. SMSFs also have a one-off chance to reset cost bases before the new tax begins. The 30 June 2026 planning window matters.

Starts

1 July 2026

Division 296 is law (Royal Assent 13 March 2026). First assessment based on 30 June 2027 balance.

Affects you if

TSB > $3M

Total super balance across all funds. Threshold is per individual — couples can have up to $6M combined and be unaffected.

Planning deadline

30 June 2026

The cost base reset election needs to be made by the 2026-27 SMSF return due date. Not automatic.

The new structure

Three tiers, based on your total super balance

Division 296 sits on top of existing super tax. The fund still pays its usual 15% on accumulation-phase earnings. Division 296 adds an additional layer of tax — assessed to you personally — on the proportion of earnings attributable to your balance above each threshold.

Up to $3 million

15%

No change — existing super tax

Standard fund tax of 15% on accumulation-phase earnings, 0% on retirement-phase earnings. No Division 296 applies. Most SMSF members will sit entirely in this tier.

$3M to $10M

30%

15% fund tax + 15% additional Division 296

Division 296 adds an extra 15% on the proportion of fund earnings attributable to your balance above $3 million. Effective rate on that portion: 30%. Both thresholds are CPI-indexed.

Above $10 million

40%

15% fund tax + 25% additional Division 296

For the proportion of your balance over $10 million, the additional Division 296 tax is 25% (rather than 15%), giving an effective tax rate on that portion of 40%.

How it works in practice

Four things you should know about the mechanics

The final version of Division 296 is meaningfully different from the original 2023 proposal. Several of the most concerning elements have been removed.

How it works 01

Realised earnings, not unrealised gains

The controversial original proposal taxed unrealised gains — theoretical increases in asset values that hadn’t been sold. That was removed in October 2025.

The legislated version taxes realised earnings — consistent with how tax normally works. Capital gains get the existing 1/3 CGT discount for assets held 12+ months. Carry-forward fund losses still apply.

How it works 02

Assessed to you, not the fund

Division 296 is a personal tax, like Division 293. The fund reports earnings to the ATO, and the ATO assesses the additional tax to you personally.

You can choose to pay the tax personally or have it released from the fund. The choice affects cash flow planning — releasing from the fund reduces your balance, paying personally preserves it.

How it works 03

Tested against your TSB — not the fund balance

The $3 million threshold is tested against your individual Total Super Balance across all of your super accounts — not the SMSF’s total.

An SMSF with two members worth $5M total but split $2.5M each will have neither member caught by Division 296. The reverse applies too — the test is at the individual level.

How it works 04

Thresholds are CPI-indexed

One of the biggest changes from the original proposal: the $3M and $10M thresholds are now indexed to CPI. They’ll rise over time rather than catching more Australians via bracket creep. The $3M threshold moves in $150,000 increments; the $10M threshold in $500,000 increments.

The transitional rule for 2026-27 tests against your balance at 30 June 2027 only. From 2027-28 onwards, you’re caught if either your opening or closing balance exceeds $3M, and the proportion is calculated against the greater of those two balances — making in-year withdrawals largely ineffective as a strategy.

Specific exemptions to be aware of

A few groups are permanently or specifically exempt from Division 296 even where the threshold is exceeded:

Child recipients of death benefit pensions are exempt for any year in which they receive an income stream as a child recipient. Recipients of structured settlement contributions — typically catastrophic injury settlement recipients — are permanently exempt from Division 296. And for the transitional 2026-27 year only, if a member dies during the year, no Division 296 tax applies for that year.

Most SMSF clients won’t fall into any of these categories, but if you receive a structured settlement payment into super, or have a child receiving a death benefit pension, these are worth confirming as part of any planning conversation.

The decision that needs careful thought

The 30 June 2026 cost base reset election

SMSFs can elect to reset the Division 296 cost base of all fund assets to their market value at 30 June 2026. This excludes pre-1 July 2026 gains from future Division 296 calculations. But there’s a catch.

Critical decision

It’s all-or-nothing, and it’s irreversible

The election applies at the fund level, not asset-by-asset. If you opt in, every asset has its Division 296 cost base reset to market value at 30 June 2026 — including assets sitting in unrealised loss positions, which would otherwise be preserved.

For funds with mostly gains, opting in is usually the right call. For funds with a mix of gains and losses, the maths needs running carefully. Once made, the election can’t be reversed.

The election must be made in the ATO’s approved form, on or before the due date for lodging the fund’s 2026-27 income tax return. Any SMSF can opt in — even funds where no member is currently above $3M. This is relevant if members are expected to exceed the threshold in future, and the fund holds long-held assets with significant unrealised gains.

Why this matters even for clients below $3M today

The cost base reset election is available to any SMSF, regardless of current member balances. For clients with growing balances who will eventually cross $3M — particularly those holding long-held assets with significant unrealised gains — opting in now protects the historic gain from future Division 296 tax.

The cost is the loss of any unrealised losses at 30 June 2026, which also get reset. For funds with strong overall gains, this is usually a worthwhile trade-off.

From this Budget specifically

Where the Budget actually helps SMSFs

Quietly, the Budget’s most disruptive measures — the new trust minimum tax, the negative gearing limits, the CGT discount removal — all leave SMSFs untouched. SMSFs become relatively more attractive than they were before.

Negative gearing preserved

SMSFs are specifically excluded from the new negative gearing limits on residential property. Property held in your SMSF can still be negatively geared within the fund, regardless of when purchased.

33⅓% CGT discount preserved

Treasury confirmed in the Budget Lockup that complying super funds, including SMSFs, will continue to receive the 33⅓% CGT discount. The effective rate on discounted gains stays at 10% in accumulation phase, 0% in pension phase.

Trust minimum tax doesn’t apply

The new 30% minimum tax on discretionary trusts doesn’t apply to complying super funds, including SMSFs. Family wealth held in super remains taxed at fund rates only.

This makes SMSFs comparatively more attractive — but doesn’t change the fundamentals

The Budget changes the relative attractiveness of SMSFs versus personal-name holdings, particularly for property and CGT-bearing investments. That’s not the same as saying everyone should start an SMSF.

SMSFs still have the same underlying requirements they’ve always had — sufficient balance to justify costs, sole purpose test, liquidity for pension phase, diversification (especially for property), trustee responsibilities. The tax differential helps, but doesn’t fix any of these.

Worked example

Division 296 in practice

A typical SMSF member with a $4 million balance. Showing how Division 296 actually calculates out in the first year of operation.

Megan — SMSF member with a $4M balance

2026-27 income year: $200,000 in realised fund earnings

Megan is 58. Her Total Super Balance at 30 June 2027 is $4 million. The fund has $200,000 in realised earnings for the year (interest, dividends, realised gains net of the 1/3 CGT discount). Her personal share of those earnings is allocated based on her proportion of the fund.

Megan’s realised earnings share $200,000

Proportion of TSB above $3M ($1M / $4M) 25%

Division 296 attributable earnings ($200k × 25%) $50,000

Additional Division 296 tax (15% × $50,000) $7,500

Megan’s Division 296 tax liability for 2026-27: $7,500. This is in addition to the $30,000 the fund already paid in regular 15% tax on the $200,000 of earnings (a portion of which relates to retirement phase and is tax-free at the fund level). Megan can either pay the $7,500 personally or have it released from her SMSF balance. If her balance stays around $4M and earnings stay similar, her annual Division 296 liability stays in the same range.

Key dates

The Division 296 timeline

The cost base reset deadline is the most important date for affected and soon-to-be-affected members. The legislation is already law — not pending.

13 March 2026

Already law. Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 received Royal Assent. Division 296 is no longer a Budget announcement — it’s legislation.

30 June 2026

Cost base reset effective date. Asset values at this date set the Division 296 starting cost base if your fund elects to opt in.

1 July 2026

Division 296 starts. First income year of operation. Fund-level reporting starts capturing the data needed for Division 296 calculations.

30 June 2027

First measurement date. Member TSB at this date determines whether Division 296 applies for 2026-27 (transitional rule — closing balance only).

2026-27 SMSF return due date

Cost base reset election deadline. The election to reset to 30 June 2026 market values must be made in an approved form by this date. Missed deadline = no relief.

From 2027-28

Higher of opening / closing balance. Test changes from closing-balance-only to the greater of the start or end of year balance — making in-year withdrawals less effective as a strategy.

What you should do

Practical steps for each situation

The right action depends on where your balance sits today and where you expect it to be when Division 296 starts.

If your TSB is near or above $3M Urgent

The cost base reset election needs analysis before 30 June 2026. This is the most time-sensitive decision in the entire 2026-27 Budget for any client — let’s book a planning meeting now.

If your TSB is $1.5M–$3M and growing

You won’t pay Division 296 yet, but you should consider whether to opt in to the cost base reset. The election protects future gains from Division 296, and any fund can opt in regardless of current member balances.

If you have a higher-balance spouse

Division 296 applies to individual TSBs. Spouse contribution splitting, recontribution strategies and similar approaches may reduce the higher member’s balance without removing money from the super system. Worth reviewing well before 30 June 2026.

If you’re close to retirement and above $3M

Pension-phase earnings are still tax-free at the fund level, but they’re included in Division 296. The decision to start a pension may interact with Division 296 timing in ways worth modelling.

If you’re considering buying property in your SMSF

SMSFs are exempt from the new negative gearing limits and CGT changes. This makes SMSF property comparatively more attractive than personal-name property from 1 July 2027 — but doesn’t make it the right structure unless the fundamentals work.

If you don’t have an SMSF but are considering one

The Budget’s SMSF carve-outs improve the relative case for SMSFs. But the establishment costs, ongoing compliance burden, trustee responsibilities and minimum-balance considerations haven’t changed. Worth a conversation before deciding.

Don’t withdraw funds in haste

Some affected members will be tempted to withdraw above-$3M balances before Division 296 starts. For most clients, this isn’t worth doing. The Division 296 tax is meaningful but not punitive, and withdrawn funds lose access to the broader super tax structure (15% fund tax, eventual 0% pension phase, no Division 296 application). Run the numbers before acting — the answer often favours staying in super.

Mastin Harris Family Wealth Protection

Your super is part of your estate plan

SMSFs aren’t covered by your Will. Death benefit decisions, binding nominations, reversionary pensions and the interaction with testamentary trusts all matter more — not less — when Division 296 changes the tax cost of large balances. Estate planning and super planning need to be done together, not separately.

Learn more →

Other Budget changes that might apply to you

SMSF members usually fit more than one of these

Most SMSF clients also have personal investments or run a business. Other Budget changes interact with your super position in important ways.

If this applies

I own (or am buying) an investment property

Negative gearing limited to new builds from 1 July 2027, plus the end of the 50% CGT discount — outside super.

Read about property changes If this applies

I hold shares or other investments

The 50% CGT discount is being replaced with indexation and a 30% minimum tax on real gains.

Read about CGT changes If this applies

I run a business through a trust

A 30% minimum tax on discretionary trusts from 1 July 2028, with rollover relief to restructure.

Read about trust changes If this applies

I run a small business

$20,000 instant asset write-off made permanent, loss carry-back returns, PAYG flexibility.

Read about small business changes If this applies

I’m a PAYG employee

Two more rate cuts plus a $1,000 instant deduction and the new $250 Working Australians offset.

Read about employee changes If this applies

I’m retired or close to it

Private health insurance rebate cut for 65+, CGT changes, pension supplement updates.

Read about retirement changes

Keep your SMSF compliant and aligned with your broader plans.

Division 296 is a meaningful change, but the planning options — cost base reset election, contribution splitting, drawdown timing, structure review — need to be tailored to your specific position. The 30 June 2026 window is real but manageable with the right preparation.

Book an appointment Contact us