Key points
- Legislation introducing a new tax on superannuation earnings for individuals with total super balances above $3 million has been enacted by Parliament.
- Only minor amendments were made to the draft legislation released in December 2025. Refer to our previous bulletin outlining key aspects of the draft legislation.
- The start date for Division 296 is 1 July 2026, with the first assessments calculated based on super balances and earnings for the year to 30 June 2027. Transitional measures applying to the 2026-2027 financial year will mean there is generally still time to consider and plan for the impacts of the new tax.
- There are some details that will be addressed in regulations that are yet to be finalised.
- You should speak with an advisor before making any changes as a result of the legislation. Careful planning and consideration of broader tax outcomes and estate planning intentions will generally lead to better outcomes.
We comment broadly on the key matters for individuals with self-managed funds below (noting matters to be considered may be different for members of APRA regulated funds or defined benefit plans).
Key change to draft legislation – application on death
Division 296 will apply in the year a member dies, with the portion of their balance above the threshold calculated from their opening total superannuation balance for that income year. Transitional arrangements mean Division 296 won’t apply if a member dies on or before 30 June 2027.
The broader impacts on estate planning should be considered which may include:
- An executor will need to determine if a Division 296 liability exists or will be raised, which could delay the final distribution of estate assets;
- In circumstances where superannuation benefits do not pass to the estate, but any Division 296 tax liability will, is the intention to provide or make any adjustment for the tax liability accordingly.
What should I do now?
Although the start date is approaching the transitional arrangements for the 2026-27 income year, together with the cost base adjustment, provide some flexibility to take action in the first year of the new tax. The impacts of the new tax should be carefully considered and options reviewed before any final decisions are made.
As the election to adjust cost bases for Division 296 purposes will apply to all assets held by a self-managed fund, assets in a loss position at 30 June 2026 cannot be excluded. Therefore, consideration should be given to asset holdings and the impact of reset cost bases well ahead of 30 June 2026.
The valuation of assets is likely to be a continued focus area for the Tax Office, and as a result SMSF auditors, due to the direct impact on the calculation of a members benefits and therefore balance thresholds and tax calculations including Division 296. Trustee(s) should start considering the approach and making arrangements for the valuation of investments as at 30 June 2026 for assets held directly by a self-managed fund and indirectly through structures including unit trusts.
Next steps
The new tax brings into focus the need to consider the appropriate timing for the transfer of wealth from superannuation and should be considered as part of broader tax and estate planning.
We recommend professional advice is sought before making any restructuring decisions given the potential costs, tax outcomes, estate planning and asset control implications.
If you would like to discuss your circumstances further, please contact us.
