Division 296: The Latest on Australia's Proposed Superannuation Tax Changes

In October 2025, the Australian Government announced significant changes to its proposed Better Targeted Superannuation Concessions (BTSC) policy, better known as the Division 296 Tax. We now have draft legislation to support the proposed changes. The legislation provides crucial detail on implementation mechanisms whilst leaving several technical elements subject to pending regulations. This increases the importance of staying informed on what is one of the most significant changes in superannuation policy in over a decade.

What is the Division 296 Tax?

After three years of announcements and amendments, the latest iteration of the Division 296 Tax was tabled in February 2026 as the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026. Alongside the name change, the new Bill formalises the amendments that were first announced in October 2025 and discussed here.

In its current form, Division 296 is a two-tiered additional tax:

• For balances above $3 million, an additional 15% tax is applied (creating an effective tax rate of 30%).
• For balances above $10 million, a further 10% tax is introduced (creating an effective tax rate of 40%).

The above taxes will apply to all income and realised gains attributable to the portion of the balance above the three-and-ten-million-dollar thresholds. These will also be subject to indexation in increments of $150,000 and $500,000 respectively. The start date for the proposed tax is 1 July 2026.

A Practical Example: Charlotte’s Division 296 Liability

Consider Charlotte, who holds $12.5 million in superannuation accumulation phase and earns $750,000 on this in the 2026–27 financial year. With her balance exceeding both Division 296 thresholds, she will be subject to additional tax.

The standard 15% superannuation tax (assuming no CGT discounts are utilised) produces an initial liability of $112,500. Division 296 then applies proportionally, with an additional 15% on 76% of her earnings (the share above $3 million) and a further 10% on 20% of her earnings (the share above $10 million), adding $100,500 in additional tax.

Charlotte’s total tax bill reaches $213,000, payable from either her superannuation fund or personal cash reserves. Notably, her effective tax rate of 28.4% remains well below her marginal income tax rate of 47%, inclusive of the Medicare levy.

Source: E&P

Please note, the table above is for illustrative purposes only and does not constitute advice. Calculations are based on proposed legislation and are subject to change.

What else do we know?

Much of what remains uncertain with respect to Division 296 is its implementation. To that end, the draft legislation released in February 2026 provided detail on three key aspects:

1. Timing and Valuation Methodology:

An individual’s exposure to Division 296 Tax will be dependent on the higher of their starting or ending Total Superannuation Balance (TSB) each financial year. This means withdrawals made throughout the year will not help avoid the tax.

The Government has, however, announced a transitional rule for 2026–27 in which only the super balance on 30 June 2027 will apply.

Strategic implication: In the period leading up to 30 June 2027, individuals who reduce their balance below $3 million by 30 June 2027 would be exempt from Division 296 Tax in the 2026–27 financial year. This strategy is highly individual, and the right decision depends on a range of personal financial factors..

2. SMSF Cost Bases:

Self-managed Superannuation Funds (SMSFs) can reset cost bases for assets to the value as of 30 June 2026. This reset applies for Division 296 purposes only and does not change the cost base used for income tax purposes (i.e., the value used when calculating capital gains when selling an asset).

This decision must be applied across all or no SMSF assets and is irrevocable. For individuals wanting to make such an election, it must be done by the 2026–27 tax return lodgement date.

Strategic implication: Individuals may elect to reset cost bases where an SMSF holds significant unrealised gains. This action may help to reduce additional tax from Division 296 when the assets are sold.

3. SMSF Actuarial Certificate Requirement:

SMSFs subject to Division 296 require an annual actuarial certificate to verify fair and reasonable earnings allocation between members. This represents an additional annual compliance cost for affected funds.

Strategic implication: Individuals must ensure their SMSF has sufficient liquidity to meet such costs and to pay their Division 296 Tax liability should they wish to do so from the superannuation environment, noting this can be paid personally as well.

What remains to be confirmed?

The Government is yet to finalise a number of matters with regard to Division 296. For SMSF investors, this includes details on the certification methodology for actuarial certificates. There is also a pressing need for detailed rules for calculating realised earnings and attributing these correctly to individuals.

The most significant area of uncertainty lies with Defined Benefit Pensions. It is expected a family law approach will be used to create a notional capital amount that forms a permanent TSB value that cannot be withdrawn or reduced. This restriction will also apply to pre-retirement members, who will only be able to manage Division 296 exposure through strategies involving their accumulation component, as their defined benefit component remains locked until retirement.

Overview

Division 296 remains one of the most significant superannuation policy reforms in recent years. Given the confirmed 1 July 2026 commencement date and pending regulations, our recommendations are:

1. Continue implementing select strategies: Strategies that have merit independent of Division 296 (such as contribution splitting, spouse contributions and portfolio rebalancing) should continue as planned.
2. Avoid permanent decisions: Refrain from making irreversible decisions (such as withdrawing substantial funds from superannuation) solely to address Division 296 until regulations are finalised.
3. SMSF cost base reset analysis: SMSFs should model the cost base reset election before the 2026–27 tax return lodgement deadline, considering the trade-off between eliminating Division 296 on pre-reset gains versus maintaining ordinary fund tax on full gains.
4. Defined benefit member planning: CSS/PSS and other defined benefit members should await final regulations before implementing substantial strategies, as the valuation methodology will determine whether Division 296 applies.
5. Liquidity planning: Individuals impacted by Division 296 should establish cash flow plans to ensure sufficient liquidity for Division 296 obligations without forced asset sales.

As legislation continues to evolve, it is recommended individuals seek financial advice as early as possible. An Evans & Partners financial adviser can help you manage Division 296’s impact and provide guidance on strategies that can be implemented to mitigate future liability.