The Legislation Has Passed
After years of debate, the Division 296 superannuation tax passed both Houses of Parliament in March 2026. The Better Targeted Superannuation Concessions measure introduces an additional tax on earnings attributable to superannuation balances above $3 million, effective from 1 July 2026.
The first assessment period is the 2026-27 financial year, meaning the earliest any member will receive an assessment is after 30 June 2027.
If you run an SMSF with an active trading strategy and your total super balance (TSB) is approaching or exceeding $3 million, you need to understand how this tax is calculated, what changed from the original proposal, and how it affects decisions about when to realise gains.
The Two-Tier Structure
Division 296 adds tax on top of the existing 15% concessional rate. The structure has two tiers:
Tier 1: Balances between $3 million and $10 million
- 15% additional tax on earnings attributable to the portion above $3 million
- Combined with the existing 15% fund tax, the effective rate on these earnings is 30%
Tier 2: Balances above $10 million
- 25% additional tax on earnings attributable to the portion above $10 million
- Combined with the existing 15% fund tax, the effective rate is 40%
Both thresholds are indexed to CPI. The $3 million threshold indexes in $150,000 increments and the $10 million threshold in $500,000 increments.
How Earnings Are Calculated
This is where the final legislation differs significantly from the original proposal -- and the difference matters for traders.
The original proposal taxed notional earnings based on the change in your total super balance, adjusted for contributions and withdrawals. That approach captured unrealised gains. If your portfolio went up $500,000 in market value but you did not sell anything, you would still owe Division 296 tax on that increase. This was widely criticised because it could create a tax liability without any cash to pay it.
The passed legislation taxes realised earnings only. The calculation is based on the fund's assessable income -- ordinary income and realised capital gains -- attributed to the member. Unrealised gains are not included.
This is a fundamental shift for active traders. Under the original proposal, holding a concentrated position with large unrealised gains would have triggered tax. Under the passed legislation, you are taxed only when you sell.
The Proportional Formula
The tax is not simply "15% on everything above $3 million." It is proportional to how much of your balance exceeds the threshold.
The formula works like this:
Division 296 tax = 15% x [(TSB - $3M) / TSB] x relevant fund earnings
For balances above $10 million, an additional component applies:
Additional tax = 10% x [(TSB - $10M) / TSB] x relevant fund earnings
Where TSB is the higher of your start-of-year or end-of-year total super balance.
Worked Example: Tier 1 Only
Your SMSF has a total super balance of $4 million and realised earnings of $300,000 for the 2026-27 financial year.
- Proportion above $3M: ($4M - $3M) / $4M = 25%
- Earnings subject to Division 296: $300,000 x 25% = $75,000
- Division 296 tax: $75,000 x 15% = $11,250
The fund also pays the standard 15% tax on all its assessable income (including the CGT discount of one-third for assets held over 12 months). The Division 296 tax is additional.
Worked Example: Both Tiers
Your SMSF has a TSB of $12 million and realised earnings of $800,000.
Tier 1 calculation:
- Proportion above $3M: ($12M - $3M) / $12M = 75%
- Earnings subject to Tier 1: $800,000 x 75% = $600,000
- Tier 1 tax: $600,000 x 15% = $90,000
Tier 2 calculation:
- Proportion above $10M: ($12M - $10M) / $12M = 16.67%
- Earnings subject to Tier 2: $800,000 x 16.67% = $133,360
- Tier 2 tax: $133,360 x 10% = $13,336
Total Division 296 tax: $90,000 + $13,336 = $103,336
This is on top of the standard 15% fund tax on the $800,000 earnings.
The Cost Base Reset Opportunity
Because Division 296 commences on 1 July 2026, assets held before that date will have accrued gains that pre-date the new tax. The legislation provides a one-off cost base reset to address this.
For SMSFs: Trustees can elect to reset the cost base of all fund assets to their market value as at 30 June 2026. This is an all-or-nothing election -- you cannot selectively reset some assets and not others. The election must be made by the due date for lodging the fund's 2026-27 tax return.
The effect is that when you eventually sell those assets, only the gains accrued after 1 July 2026 are counted for Division 296 purposes. Gains that built up over prior years are excluded.
For non-SMSF funds (APRA-regulated): A different mechanism applies -- a phased reduction in taxable capital gains over four financial years from 2026-27 to 2029-30.
If your SMSF holds shares with large unrealised gains that were purchased years ago, the cost base reset is worth serious consideration. Discuss the specifics with your accountant before 30 June 2026, because the election timing is important.
Impact on Active Traders
For SMSF trustees who actively trade, Division 296 changes the calculus in several ways:
Realised Gains Now Carry a Higher Tax Cost
Before Division 296, a complying SMSF paid 15% on assessable income (with a one-third CGT discount for assets held over 12 months, reducing the effective rate to 10% on discounted gains). For balances above $3 million, the effective rate on realised gains is now 30% (or 40% above $10 million).
For a swing trader in an SMSF generating frequent short-term gains (no CGT discount), the tax rate on gains attributable to the balance above $3 million effectively doubles from 15% to 30%.
Timing of Realisations Matters More
Because the tax is based on realised earnings, the timing of when you close profitable trades affects your Division 296 liability.
If your TSB is near the $3 million threshold and you have a choice about when to take profits on a long-term holding, realising those gains when your balance is below $3 million avoids Division 296 entirely. Once your balance crosses $3 million, any realised gain is partially caught.
This does not mean you should let tax considerations override your trading strategy. A profitable exit is still profitable after higher tax. But being aware of the threshold and its effect on your after-tax return is part of managing an SMSF portfolio.
Contribution Strategy Interactions
Your total super balance includes all your super interests, not just your SMSF. If you have balances in other funds, they count toward the $3 million threshold. Contributions also affect your TSB.
Active traders with balances near the threshold should model how additional contributions interact with Division 296. A contribution that pushes your TSB from $2.9 million to $3.1 million means a portion of all future realised earnings is subject to the additional tax.
Payment Mechanics
Division 296 is assessed to the individual member, not to the fund. The ATO will issue an assessment to you personally after the end of each financial year.
You have 84 days to pay. If you do not have personal funds available, you can elect to have the tax released from your super fund -- even if you would not otherwise be eligible to access your super (for example, if you are under preservation age). This is a special release mechanism designed specifically for Division 296.
Planning Considerations for 2026-27
Review your TSB before 30 June 2026. Know exactly where you stand relative to the $3 million threshold. If you are close to the boundary, consider whether any planned contributions, pension payments, or asset realisations could shift your position.
Evaluate the cost base reset. If your SMSF holds assets with significant pre-existing gains, the cost base reset prevents those gains from being counted under Division 296 when eventually realised. The trade-off is that you must reset all assets, including any that may have declined in value (resetting their cost base lower).
Model your trading activity. If you generate $200,000 per year in realised gains through active trading and your TSB is $5 million, the Division 296 impact is:
- Proportion above $3M: ($5M - $3M) / $5M = 40%
- Earnings subject to Division 296: $200,000 x 40% = $80,000
- Additional tax: $80,000 x 15% = $12,000 per year
That is $12,000 in additional tax annually -- meaningful, but not necessarily a reason to change your strategy. Whether to adjust depends on the size of the additional tax relative to your total returns.
Consider pension phase timing. Assets in pension phase are generally exempt from fund-level tax (including CGT). Division 296, however, applies to your total super balance regardless of which phase the assets are in. Pension phase does not shield you from Division 296.
Get professional advice. Division 296 interacts with contribution caps, transfer balance caps, pension rules, and CGT discounts in ways that are specific to your individual situation. This article provides the framework, but the application to your SMSF requires professional analysis.
Disclaimer: This article is general information only and does not constitute financial, tax, superannuation, or legal advice. Division 296 is new legislation and the ATO is yet to issue comprehensive guidance on its administration. The examples use simplified calculations and may not reflect all factors relevant to your situation. Superannuation law is complex, and incorrect decisions can have significant financial consequences. Always consult a qualified SMSF specialist, tax professional, or licensed financial adviser before making decisions about your superannuation. This article reflects the legislation as passed in March 2026 and may not capture subsequent amendments or ATO interpretive guidance.