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Most commentary on Division 296 has focused on one question: should I take money out of super? That is almost always the wrong starting point. The right starting point is simpler and more powerful: how does this change the way every component inside my SMSF works together?
Division 296 is now law and applies from 1 July 2026. For SMSF trustees approaching or above $3 million, this is no longer a niche tax topic. It changes the marginal calculus for investment strategy, insurance structuring, contribution timing, liquidity management, and death benefit planning. A whole of fund review becomes a governance obligation.
Investment Strategy: Asset Allocation Now Affects Division 296 Outcomes
Under the revised design, Division 296 is applied using a realised earnings approach aligned to income tax concepts. That means realised income and realised capital gains matter more than they did under the older proposal that would have taxed balance movements including unrealised gains.
Two funds of the same size can have very different Division 296 outcomes if their realised taxable income differs.
A fund holding growth assets that realise less income in a given year may generate lower Division 296 earnings than a fund holding higher yielding assets, even if total return across several years is similar. That does not mean every SMSF should chase growth. The investment strategy must still reflect risk tolerance, time horizon, concentration limits, and liquidity needs. But Division 296 now deserves a paragraph in the investment strategy document and in the annual review process.
If the investment strategy document does not mention Division 296, it is already out of date for affected members.
Insurance Inside the SMSF: Three Questions Most People Are Missing
Insurance held inside an SMSF now has interactions that many advisers are not modelling properly.
Question 1: Do insurance premiums reduce Division 296 exposure?
Premiums paid from the SMSF reduce the fund’s assets and can reduce a member’s total superannuation balance. For someone near the $3 million threshold, premiums can reduce the proportion of earnings above the threshold. This is not a reason to hold unnecessary insurance. It is simply a modelling variable that belongs in the analysis.
Question 2: What happens if you move insurance outside super to reduce your balance?
Some advisers are suggesting that clients shift insurance outside super to reduce total superannuation balance and therefore reduce Division 296 exposure.
The cost trade off is not small. Premiums paid inside super are funded from concessional contributions taxed at 15 per cent, or 30 per cent if Division 293 applies. Premiums paid outside super are funded from after tax income, which for many professionals is taxed up to 47 per cent including Medicare levy.
For a professional paying $15,000 per year in premiums, the after tax cost of holding insurance outside super can be materially higher than inside super. In many cases, the Division 296 saving from reducing the balance is smaller than the premium efficiency lost by moving it outside.
This is a modelling decision, not a rule.
Question 3: What happens in the year of death?
From 2027 to 2028 onwards, the regime considers the higher of start and end of year balances. That creates a specific planning point for members who start a year above the threshold but die during the year.
In simple terms, death does not necessarily remove Division 296 exposure in that financial year if the start of year balance exceeded the threshold. This is one reason death benefit planning, liquidity planning, and insurance placement need to be reviewed together.
It is also why SMSFs holding life insurance should ensure they can meet potential liabilities without forced asset sales at the wrong time.
Contribution Strategy: When More Super Needs Modelling
For members above $3 million who are still contributing, the marginal benefit of each additional dollar should now be modelled.
Concessional contributions still receive concessional treatment at entry. But the earnings on the increased balance can now be subject to Division 296 on the portion above the threshold. For balances above $10 million, the additional Division 296 tax rate is 25 per cent on the relevant earnings portion, producing a 40 per cent effective earnings rate on that portion when combined with the standard 15 per cent fund tax.
Super can still win. But the answer is no longer automatic. At higher balances, outside super structures such as a discretionary trust, a company, or an investment bond may become more attractive for future savings flows depending on tax rate, estate intent, and governance preferences.
Investment bonds are often misunderstood. They are not a bond investment. They are a tax paid structure that can hold a diversified portfolio outside super. For some families, they offer an administratively simple alternative to trust structures for future savings once super has reached a very high balance.
The Cost Base Reset: Do Not Wait
The cost base reset election is a once only decision for SMSFs. It resets the cost base of all CGT assets to market value at 30 June 2026 for Division 296 purposes.
It relies on valuations at 30 June 2026. That is the real work. If you hold property, unlisted investments, or other illiquid assets, do not leave valuation to the last minute.
Even funds where no member currently exceeds $3 million should consider this election if they expect balances to rise and assets have large unrealised gains. Indexation exists, but strong investment growth can still outpace thresholds over time.
The Five Point SMSF Review Under Division 296
Build MyWealth applies a five point review to SMSF engagements, and Division 296 now adds a layer to each point.
1. Benefit payment readiness: Can the fund pay a Division 296 assessment without selling assets at the wrong time
2. Concentration exposure: Does the investment strategy consider how realised income and realised gains affect Division 296 outcomes
3. Insurance alignment: Has insurance inside versus outside super been modelled for premium efficiency, liquidity, and the year of death scenarios
4. Contribution and drawdown modelling: Are contributions still optimal at the current balance, or should future savings flows be redirected outside super
5. Governance and compliance: Does the investment strategy document reference Division 296, and has the cost base reset election been considered with valuations planned
For the full Division 296 framework including worked scenarios, see our Division 296 Tax Strategy page.
For insurance structuring considerations including inside versus outside super, see our Risk Insurance Strategy page.
For contribution timing and cap 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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