Welcome to the first issue. Each month this newsletter takes one financial decision people are facing right now, shows the common answer, then runs the actual numbers with every assumption on the table. No predictions, no products. Just the model, and the number that changes the decision.
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The decision
Division 296 is now law and applies from 1 July 2026. It adds a 15 per cent tax to the portion of taxable super earnings attributable to balances above $3 million, with an additional 10 per cent applying to the portion attributable to balances above $10 million. The thresholds are indexed, the test is per person rather than per fund, and the final legislation does not tax unrealised gains the way the original proposal would have.
The first year contains an unusual planning window. For 2026-27, whether Division 296 applies is determined using your total super balance at 30 June 2027. From 2027-28 onwards, the higher of the relevant opening and closing balances is used, so a large withdrawal late in the year generally cannot erase that year’s exposure in the same way.
That makes this one of the more important super decisions before 30 June 2027 for people who can legally access their super: should money come out, or is paying Division 296 actually cheaper?
The common answer
Get under $3 million. It is the reflex response, it is what the headline tax rate encourages, and it is an understandable reaction after years of debate about taxing large balances. But getting rid of a tax does not necessarily make you better off. The money has to go somewhere.
The model
Four scenarios, one common assumption so they can be compared. Assume taxable super earnings attributable for Division 296 purposes equal 5 per cent of the member’s balance each year, think income plus some realised gains, and ignore future indexation and investment differences between structures. The model takes those earnings and applies the Division 296 rate to the proportion attributable to the balance above $3 million. The actual statutory calculation works through taxable super earnings attributed from the member’s super interests, so real outcomes depend on the fund and its earnings.
Scenario 1: $4 million, age 68, pension phase. Earnings $200,000. The balance above $3 million is $1 million, or 25 per cent, so $50,000 of earnings is attributable to the excess. Division 296 bill: $7,500. Now suppose the member withdraws $1 million before 30 June 2027 and invests it personally. Division 296 on that slice disappears, but the $1 million still produces investment income and gains somewhere else. At the same assumed 5 per cent return, that is $50,000 outside super. For somebody with little other taxable income, the personal tax on that $50,000 may come in below the $7,500 bill, depending on the character of the return and available offsets. For somebody already in the top bracket, additional ordinary investment income can face a 47 per cent marginal rate including Medicare levy. Same $1 million, same return, completely different answer.
Scenario 2: $3.5 million, age 55, accumulation. Earnings $175,000. The excess is $500,000, one seventh of the balance, so $25,000 is attributable. Division 296 bill: $3,750, roughly 0.1 per cent of the balance. There is a more fundamental point: at 55, the member cannot simply withdraw $500,000 because the tax is inconvenient. Super remains preserved unless a condition of release is satisfied. For someone years from access, Division 296 is a planning input, not an emergency withdrawal strategy.
Scenario 3: couple with $4.5 million, split $3.8 million and $700,000. Division 296 is assessed on the individual, not the household. The first member has $800,000 above the threshold, about 21 per cent of their balance, so around $40,000 of their $190,000 earnings is attributable. Bill: $6,000. Take the same household wealth split $2.4 million and $2.1 million and neither member is above $3 million. Bill: zero. Nothing about the couple’s total wealth changed, only the ownership of the super. But this is where spreadsheets meet super law. You generally cannot move $700,000 between spouses with a journal entry. Withdrawals require access, and getting money into the other spouse’s super is constrained by contribution rules and caps. An unequal balance is something to work on over years, not something to discover in June 2027.
Scenario 4: $5 million SMSF holding $3.5 million of business premises. Earnings $250,000, largely rent. The member is $2 million above the threshold, 40 per cent of the balance, so $100,000 of earnings is attributable. Bill: $15,000, assessed to the individual, who can pay personally or elect to have money released from super under the statutory process. That is straightforward when a fund owns liquid investments and much less so when most of the member’s wealth is a building. Selling a valuable business property solely to remove a $15,000 annual liability could create transaction costs, tax consequences and the loss of an asset the family wanted to retain. This is not automatically a withdrawal problem. It may be a liquidity problem.
There is another decision sitting beside it. Eligible small superannuation funds, including SMSFs, can make a one-off election to reset the cost base of qualifying CGT assets to their 30 June 2026 market value for Division 296 purposes. The election can matter even where members are not currently above $3 million, applies broadly across the qualifying assets covered by it, and cannot simply be reversed later. For property-heavy SMSFs, that election may prove more important than trying to engineer the balance down at the last minute.
What changed the result
Three inputs changed these answers, and none was the headline tax rate.
The first is the tax treatment waiting outside super. Withdrawing money does not make its future earnings disappear, it changes where they are taxed. For someone with little taxable income outside super, that can favour withdrawal. For somebody already paying the top marginal rate, shifting income-producing assets out of a concessionally taxed environment can cost substantially more than the Division 296 tax being avoided. And personal names are not the only destination: structures such as investment bonds tax earnings internally at up to 30 per cent, which changes the arithmetic again and is exactly why the comparison has to be modelled rather than assumed.
The second is the character and amount of earnings attributed for Division 296 purposes. The final legislation moved away from the original unrealised gains model, which makes the composition of returns important. A portfolio producing substantial taxable income and regularly realising gains can create a different Division 296 outcome from a portfolio earning more of its return through unrealised growth, even when the two portfolios begin and finish with similar values.
The third is why the money is leaving super. Division 296 should not be modelled in isolation from estate planning. If money will ultimately pass to adult children, tax on the taxable component of a super death benefit may matter more than the annual Division 296 bill. A withdrawal or recontribution strategy could make sense for estate reasons even where the Division 296 calculation, viewed alone, says leave the money where it is.
The number that changes the decision
The tax rate on the next dollar of investment earnings outside super. In pension phase, the simplified comparison on the excess slice is roughly a 15 per cent Division 296 rate against whatever tax the same return would bear outside. All else equal, below 15 per cent effective tax outside super, withdrawal becomes more attractive on that excess slice. At 30, 39 or 47 per cent, the case for taking money out to avoid a 15 per cent charge gets progressively weaker. In accumulation phase, ordinary fund tax sits underneath the calculation, and the government’s broad policy description is a combined concessional rate of up to 30 per cent on earnings attributable to balances between $3 million and $10 million. Capital gains discounts, exempt pension income and deductions all move the real result, but it tells you where to start. Not “how far over $3 million am I?” but “what happens to the next dollar if I take it out?”
Questions to take to your adviser, accountant or lawyer
Am I measuring my total super balance across every relevant super interest, not just the SMSF?
Division 296 applies to the portion of taxable super earnings attributable to balances above $3 million, the thresholds are indexed, and the test is per person rather than per fund. For 2026-27, whether Division 296 applies is determined using your total super balance at 30 June 2027.
If we are a couple, how much of our combined super sits unnecessarily above one person’s threshold while the other remains below theirs?
Division 296 is assessed on the individual, not the household. A couple with $4.5 million split $3.8 million and $700,000 faces a bill of around $6,000 a year, while the same household wealth split $2.4 million and $2.1 million produces a bill of zero. You generally cannot move $700,000 between spouses with a journal entry. Withdrawals require access, and getting money into the other spouse’s super is constrained by contribution rules and caps. An unequal balance is something to work on over years, not something to discover in June 2027.
If I can withdraw before 30 June 2027, what tax would the withdrawn assets actually generate in my hands?
Withdrawing money does not make its future earnings disappear, it changes where they are taxed. For someone with little taxable income outside super, that can favour withdrawal. For somebody already paying the top marginal rate, shifting income-producing assets out of a concessionally taxed environment can cost substantially more than the Division 296 tax being avoided. Structures such as investment bonds tax earnings internally at up to 30 per cent, which changes the arithmetic again and is exactly why the comparison has to be modelled rather than assumed.
Does the SMSF hold enough liquidity to meet future Division 296 release requests without selling a major asset?
The tax is assessed to the individual, who can pay personally or elect to have money released from super under the statutory process. That is straightforward when a fund owns liquid investments and much less so when most of the member’s wealth is a building. Selling a valuable business property solely to remove a $15,000 annual liability could create transaction costs, tax consequences and the loss of an asset the family wanted to retain. This is not automatically a withdrawal problem. It may be a liquidity problem.
Should the fund make the 30 June 2026 CGT cost base adjustment election, even if nobody is above $3 million today?
Eligible small superannuation funds, including SMSFs, can make a one-off election to reset the cost base of qualifying CGT assets to their 30 June 2026 market value for Division 296 purposes. The election can matter even where members are not currently above $3 million, applies broadly across the qualifying assets covered by it, and cannot simply be reversed later. For property-heavy SMSFs, that election may prove more important than trying to engineer the balance down at the last minute.
Does my estate plan still produce the result I intended once Division 296 and super death benefit tax are modelled together?
Division 296 should not be modelled in isolation from estate planning. If money will ultimately pass to adult children, tax on the taxable component of a super death benefit may matter more than the annual Division 296 bill. A withdrawal or recontribution strategy could make sense for estate reasons even where the Division 296 calculation, viewed alone, says leave the money where it is.
Next issue
You’ve sold the business. What happens to the money decides everything.
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This newsletter contains general information only and does not take into account your objectives, financial situation or needs. Consider whether it is appropriate for you and seek personal advice before acting. Sangram Rana is a Principal Financial Adviser at Build MyWealth. Build MyWealth (Accounting Cloud Pty Ltd) is a Corporate Authorised Representative (No. 1306106) of Lifespan Financial Planning Pty Ltd, AFSL 229892.