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Division 296 has now become law. The Better Targeted Superannuation Concessions legislation has passed Parliament and received Royal Assent, and it applies from 1 July 2026.
Most commentary in the last week has focused on what the law says. This article focuses on what you need to do about it, and when.
This is not a reason to panic. For many high income professionals, superannuation will still remain one of the most efficient long term structures. But Division 296 changes the marginal decision making for very large balances. That means you need modelling, liquidity planning, and governance work that many people have never done inside their super.
What Division 296 Actually Does
Division 296 imposes an additional tax on superannuation earnings for individuals whose total superannuation balance exceeds certain thresholds.
The structure is tiered. Earnings attributable to the portion of a balance between $3 million and $10 million are taxed at an additional 15 per cent. Earnings attributable to the portion of a balance above $10 million are taxed at an additional 25 per cent. In practice, this means the effective tax rate on the relevant earnings portion becomes 30 per cent for the first tier and 40 per cent for the second tier. Both thresholds are indexed.
A key design change is that the revised model does not tax unrealised gains. The policy moved away from the earlier “paper gains” approach and is now framed around realised earnings aligned to income tax concepts.
The ATO issues the Division 296 assessment to the individual, not the fund. Individuals can choose to pay the tax personally or elect to release the amount from superannuation using a release authority mechanism.
The Three Decisions Before 30 June 2026
There are three decisions you should not leave to the last minute. The window is short because Division 296 starts from 1 July 2026, and some actions depend on valuations and governance steps that take time.
1. The SMSF cost base reset election
SMSFs have a once only election to reset the cost base of all CGT assets to market value at 30 June 2026 for Division 296 purposes. This does not change ordinary fund tax. It is a Division 296 specific reset designed to ensure pre commencement gains are not dragged into future Division 296 calculations when an asset is eventually sold.
The election is irrevocable and applies across the fund. It is not an asset by asset choice. If you hold direct property or other illiquid assets with substantial unrealised gains, this election is worth serious consideration.
Even if you are below $3 million today, it is still relevant. Balances grow. Thresholds are indexed, but indexation may not keep pace with strong investment returns across long periods. The cost base reset can function like structural insurance against future exposure.
Practically, the election is made with the 2026 to 2027 return. But it relies on market value at 30 June 2026. That means valuations and documentation are the real work, and they must be done properly, especially for property and unlisted assets.
2. Contribution strategy review
For professionals with balances approaching $3 million, the marginal decision changes. Concessional contributions are still taxed at 15 per cent, or 30 per cent if Division 293 applies. But the earnings on the increased balance can now attract Division 296 on the proportion above the thresholds.
In many cases, superannuation will still be tax effective even under Division 296. But the correct answer is no longer automatic. It depends on your balance, your income, your time horizon, and your structure outside super.
This is the year to model the effective tax cost and benefit of the next tranche of contributions, rather than assume the old logic still holds.
3. Outside super structure assessment
For professionals whose balances are well above $3 million, the marginal efficiency of super can shift for future savings flows. That does not mean withdrawing large amounts from super. In most cases, that creates tax, investment and estate consequences that are worse than the Division 296 liability itself.
It may mean directing future savings into structures outside super that suit your situation. That could include an investment bond, a discretionary trust, a corporate structure, or direct ownership, depending on your tax rate, liquidity needs, governance preferences, and estate goals.
Investment bonds are worth mentioning clearly here. They are not a “bond” investment. They are a tax paid investment structure that can hold a diversified portfolio outside super. For some high income families, they can sit between personal ownership and trust complexity.
The 30 June 2027 Transitional Window
The first year matters.
For 2026 to 2027, the assessment focuses on the end of year position. From 2027 to 2028 onwards, the design moves to a higher of start and end balance approach, which changes the strategy options available once you are already above the threshold.
This creates a narrow window. If your balance is above $3 million on 1 July 2026 but you can legitimately bring it below $3 million by 30 June 2027, you may reduce or avoid Division 296 for the first year.
Whether this is worth pursuing depends entirely on your position and the cost of action. It may trigger capital gains tax, remove assets from the concessional environment, and disrupt estate planning intent. It requires modelling, not rules of thumb.
What Not to Do
Do not withdraw from super in a panic. Division 296 is a marginal tax on a proportion of earnings, not a confiscation of wealth. The additional tax may be meaningful for large balances, but for many clients it remains smaller than the benefits of super’s structure over decades.
Do not assume contribution strategy remains optimal without modelling.
Do not defer the cost base reset preparation. Even if the election is made later, the valuation and governance work must reflect 30 June 2026.
Next Steps
For a detailed breakdown of how Division 296 is calculated, including worked scenarios and the framework for assessing exposure, see our Division 296 Tax Strategy page.
For SMSF specific considerations including liquidity planning, insurance structuring, and contribution timing, see our SMSF Strategy page.
For contribution cap tables and carry forward calculations before 30 June, see our EOFY Super Contribution Strategy page.
Sangram Rana is an IFA Excellence Awards finalist: Risk Adviser of the Year 2022, 2023, and 2025, SMSF Adviser of the Year 2022 and 2023, and Client Outcome of the Year 2022. Published in the Australian Financial Review, Money and Life, SmartCompany, Inside Small Business, Professional Planner, Life Insurance Guide, CommBank Brighter Magazine, and Benefolk. Corporate Authorised Representative, Lifespan Financial Planning AFSL 229892.
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