Home / Grow my wealth / Division 296 tax strategy
Grow my wealth
Division 296 Tax Strategy: What High-Balance Super Members Need to Know
Division 296 is law and applies from 1 July 2026. It is not a panic event. It is a modelling exercise: contribution strategy, SMSF liquidity, the cost base reset and outside-super structures, reviewed as one plan.
Is Division 296 relevant to you?
- Your total superannuation balance is approaching or above $3 million
- Your total superannuation balance is above $10 million
- Your SMSF holds property or unlisted assets with limited liquidity
- You expect a contribution decision, liquidity event or business sale in the next 12 to 24 months
- You want to review your position before the first assessment, for the year ending 30 June 2027
If any of these apply, the strategies on this page are relevant to your planning.
This is especially relevant for medical specialists and other high-income professionals building substantial super balances; see our guide for doctors and medical specialists.
How the tax is layered
Three bands of total super balance
Headline rates on the share of earnings that relates to each band. The fund's 15 per cent tax applies throughout.
Up to $3 million
15%
No Division 296 tax. Earnings are taxed in the fund as before.
$3 million to $10 million
up to 30%
An extra 15 per cent applies to the share of earnings that relates to the balance above $3 million.
Above $10 million
up to 40%
A further 10 per cent applies to the share of earnings that relates to the balance above $10 million.
Both thresholds are indexed. Division 296 is assessed to the member, and can be paid from super.
How Division 296 works
Division 296 applies from 1 July 2026, following Royal Assent on 13 March 2026. It is a tax on the individual, not the fund: the ATO issues the assessment to the member, and the tax can be paid from super.
Step one is your total superannuation balance across all funds. For 2026-27, the balance tested is the balance at 30 June 2027. From 2027-28, it is the greater of the balance at the start of the year and the balance at the end.
Step two is your super earnings. For most funds, including SMSFs, the fund works out its earnings for Division 296 from realised income and gains, then attributes a share to each member. Unrealised gains are not taxed.
Step three is the share of your balance above $3 million. That share of your earnings is taxed at an extra 15 per cent. If your balance is above $10 million, the share above $10 million is taxed at a further 10 per cent.
Both thresholds are indexed. If your earnings for the year are nil or negative, there is no Division 296 tax for that year, and negative earnings cannot be carried forward.
Worked example, 2026-27
A $4 million balance with $200,000 of earnings
Total super balance at 30 June 2027 of $4,000,000. Earnings reported by the fund for the year of $200,000.
Step 1
25%Share of the balance above $3 million: $1,000,000 of $4,000,000Step 2
$200,000Earnings the fund reports for the member for the yearStep 3
$50,000Taxable super earnings: 25% of $200,000Division 296 tax
$7,50015% of $50,000The cost base reset election
SMSFs can elect to reset the cost base of all their CGT assets to market value at 30 June 2026, for Division 296 purposes only. Gains that built up before Division 296 started are then left out of Division 296 earnings when the assets are eventually sold.
The election is made at fund level, not asset by asset. If the fund elects, every asset is reset, including those sitting at a loss. It cannot be undone.
The election is due by the lodgement date of the fund’s 2026-27 annual return. It does not change the fund’s ordinary income tax.
Any SMSF can elect, even if no member is currently above $3 million. That can be worth considering for funds where member balances are projected to pass the threshold.
The Five-Point Division 296 Exposure Diagnostic
Balance trajectory
Where is your total super balance heading over the next five, ten and fifteen years, and when does it cross each threshold?
Unrealised gain exposure
What share of your SMSF assets carries large unrealised gains, and what does the cost base reset do to them?
Effective tax rate comparison
Is the combined rate under Division 296 still lower than holding the same assets personally, in a trust or in a company?
Withdrawal and recontribution analysis
Can reducing your balance before 30 June 2027 help without triggering costs that outweigh the saving?
Estate and succession alignment
Does reducing super to manage Division 296 conflict with your estate plan or death benefit strategy?
To understand how Division 296 interacts with succession and beneficiary planning, see our estate planning strategy.
Strategies to manage Division 296
Consider the cost base reset
For SMSFs holding assets with large unrealised gains, the reset can materially reduce Division 296 earnings when those assets are sold. Assets at a loss are reset too, so the net effect across every fund asset needs modelling before the deadline.
Withdraw to reduce your balance
For 2026-27, only the balance at 30 June 2027 is tested, so a withdrawal before that date can reduce or remove exposure for that year. From 2027-28 the greater of the opening and closing balance is used, which limits the benefit of mid-year withdrawals. Withdrawing can trigger capital gains tax and removes assets from the concessional environment. It is most relevant for members just above $3 million who have met a condition of release, and it is not a default recommendation. For four modelled scenarios, read Division 296 is law. Should money leave super before 30 June 2027?
Adjust contribution strategy
Members whose balance is projected to pass $3 million may consider directing voluntary contributions outside super to slow balance growth. Contributions still receive the 15 per cent entry rate but may bring Division 296 exposure forward.
Restructure assets outside super
For very large balances, particularly above $10 million, the 40 per cent headline rate may favour holding some assets outside super in a family trust, company or personal name. The answer depends on the member’s marginal rate, the type of income and the intended holding period.
Outside-super options
For some clients, the most effective response to Division 296 is not to restructure inside super but to direct future wealth accumulation to structures outside superannuation. The right structure depends on your marginal tax rate, time horizon, liquidity needs and estate planning objectives. Common options include family trusts, companies, personal name investing and investment bonds.
An investment bond, also called an insurance bond, is not a government or corporate bond. It is a tax-paid investment structure that can hold an underlying portfolio of cash, fixed interest, Australian and international shares, or multi-asset options. For some clients it can be a useful outside-super structure where the goal is to limit further super balance growth, simplify tax administration and improve estate planning control over a long horizon. Any decision should be modelled alongside trust, company and personal investing alternatives.
From 1 July 2027, the 50 per cent CGT discount for individuals and trusts is replaced by cost base indexation and a minimum 30 per cent tax on capital gains. That changes the comparison between super and outside-super structures for assets sold after that date.
| Structure | Tax on earnings | Access | Estate control | Admin |
|---|---|---|---|---|
| Super | 15% in the fund; plus Division 296 on the share above $3m (15%) and above $10m (a further 10%) | Restricted until a condition of release | Death benefit nomination, trust deed and fund rules | Annual audit and trustee duties (SMSF) |
| Family trust | Taxed at beneficiaries’ rates; CGT rules change from 1 July 2027 | Flexible, subject to trustee discretion | High, through trustee and appointor | Medium |
| Company | 30% (25% for a base rate entity); no CGT discount | Through dividends or loan repayments | Through shareholding and constitution | Medium to high |
| Investment bond | Tax paid within the bond; improved treatment after 10 years (rules apply) | Accessible at any time | Can pay to a nominated beneficiary | Low |
| Personal name | Full marginal rate; CGT rules change from 1 July 2027 | Fully accessible | Passes through the will | Low |
A general summary only. Tax outcomes depend on individual circumstances.
Common questions
What is Division 296 tax and who does it affect?
Division 296 is an extra tax on superannuation earnings for individuals with a total superannuation balance above $3 million, with a further tier above $10 million. It applies from 1 July 2026, following Royal Assent on 13 March 2026 (Act No. 8 of 2026).
How is Division 296 tax calculated?
Your fund works out your super earnings for the year, for most funds from realised income and gains. The share of those earnings that matches the share of your balance above $3 million is taxed at 15 per cent, and the share above $10 million at a further 10 per cent. For 2026-27 the balance tested is the balance at 30 June 2027; from 2027-28 it is the greater of the opening and closing balance.
Does Division 296 tax unrealised capital gains?
No. The enacted law taxes earnings worked out from realised income and gains for most funds. For SMSFs, the one-third CGT discount continues to apply to assets held for more than 12 months.
What is the cost base reset election?
SMSFs can elect to reset the cost base of all CGT assets to market value at 30 June 2026 for Division 296 purposes only, so gains built up before Division 296 started are excluded. The election is made at fund level, cannot be undone, and is due by the lodgement date of the fund’s 2026-27 annual return.
Can I choose which assets are included in the reset?
No. The election applies at fund level. If the fund elects, every asset is reset, including those sitting at a loss.
Are the thresholds indexed?
Yes. Both the $3 million and $10 million thresholds are indexed under the enacted law.
Should I withdraw super to get below $3 million?
Not necessarily. Withdrawing can trigger capital gains tax, removes assets from the concessional environment and can reduce estate planning flexibility. For 2026-27, only the balance at 30 June 2027 is tested, which creates a window; from 2027-28 the greater of the opening and closing balance is used. Modelling is essential before any withdrawal.
When is the first Division 296 assessment?
The first assessment is for the 2026-27 financial year. The ATO will issue it after 30 June 2027, once funds have reported members’ earnings.
Can Division 296 tax be paid from super?
Yes. The assessment is issued to the individual, but the liability can be paid from super, similar to Division 293.
What happens if my earnings are negative in a year?
There is no Division 296 tax for that year, and the negative amount cannot be carried forward for Division 296 purposes. Fund-level tax losses can still be carried forward under the fund’s normal tax rules.
Does Division 296 apply to defined benefit pensions?
Yes, with different rules. Defined benefit interests use a calculation based on changes in the value of the interest, and where benefits are not yet payable the tax may be deferred until the first benefit is paid.
Is super still tax-effective with Division 296?
For many members, yes. Even at a combined 30 per cent on the share above $3 million, super can remain more tax-effective than holding assets personally at the top rate of 45 per cent plus the 2 per cent Medicare levy. The answer depends on your marginal rate, the type of income and the intended holding period.
Should I use an investment bond instead of contributing more to super?
It depends on where additional contributions stop being worthwhile once Division 296 applies, and on your time horizon and estate goals. An investment bond is a tax-paid structure that can hold a diversified portfolio outside super. It should be compared against trusts, companies and personal investing for your circumstances. We treat it as a modelling decision, not a product decision.
Related strategies
Advice led by Sangram
Sangram Rana
Principal Financial Adviser. Qualified accountant and registered tax agent.
Strategy and key advice meetings are led by Sangram, with the Build MyWealth team supporting analysis, preparation and implementation.
Sangram Rana is a 2026 Australian Wealth Management Awards finalist for Adviser of the Year, Estate Planning, and an IFA Excellence Awards finalist for Risk Adviser of the Year in 2022, 2023 and 2025. Build MyWealth is a 2026 IFPA Australian Financial Industry Awards finalist for SMSF Practice of the Year.
Model your Division 296 exposure
Request a consultation to model your position before the first assessment. Your first meeting is a 30-minute online conversation with Sangram Rana. We reply within one business day.
General advice warning: any advice on this site is general in nature only and has not been tailored to your objectives, financial situation or needs. Before acting on this information, consider whether it is appropriate for you and seek personal advice.
Build MyWealth is a trading name of Accounting Cloud Pty Ltd. Accounting Cloud Pty Ltd is a Corporate Authorised Representative (No. 1306106) and Sangram Rana is an Authorised Representative (No. 1251526) of Lifespan Financial Planning Pty Ltd (AFSL 229892). This page contains general information only and does not constitute personal financial advice. Financial Services Guide available at lifespanfp.com.au.
Rates and thresholds should be confirmed on ATO published pages at the time of implementation, as indexation and legislation changes can occur.