Updated 10 October 2026
Division 296 is law. From 1 July 2026 an additional 15 per cent tax applies to earnings attributable to the slice of a total superannuation balance between $3 million and $10 million, and a further 10 per cent above $10 million. Unrealised gains were dropped from the final design, but market values were not: the thresholds are tested on balances, funds can make a one-off cost base reset election at 30 June 2026 values, and SMSF property drives both numbers.
At a glance
- Division 296 adds 15 per cent on earnings attributable to total super balances between $3 million and $10 million, and 25 per cent above $10 million
- Enacted 13 March 2026 (Act No. 8 of 2026); applies from 1 July 2026 with the first balance test at 30 June 2027
- Tax on unrealised gains was dropped in the October 2025 redesign; only realised earnings are taxed
- Funds can make a one-off, irrevocable cost base reset election at 30 June 2026 market values
- SMSFs holding property need a supportable 30 June 2026 valuation to underpin the reset election
In this guide
What Division 296 is
The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 passed Parliament on 10 March 2026, received Royal Assent on 13 March 2026, and commenced on 1 July 2026. It adds a new tax, on top of the fund's ordinary 15 per cent, on the earnings attributable to the portion of an individual's total superannuation balance (TSB) above $3 million: an extra 15 per cent between $3 million and $10 million, and an extra 10 per cent, 25 per cent in total, above $10 million. Both thresholds are indexed.
The tax is levied on the member personally, not the fund, and can be paid from the member's own money or released from super. The first test is the TSB at 30 June 2027, with first assessments following the 2026-27 year.
How it is calculated
In outline: work out the member's realised earnings for the year that are attributable to the portion of TSB above each threshold, then apply the additional rate to that slice. Because the test runs off the total superannuation balance, the market value of every fund asset at 30 June feeds directly into whether a member crosses $3 million at all, and how much of their earnings sit above the line. For an SMSF holding direct property, the property valuation is usually the largest single input into that balance.
What was dropped from the original design
The 2023 proposal taxed unrealised gains and used a hard $3 million threshold with no indexation, and it drew years of professional opposition on both points. The redesign announced on 13 October 2025 and carried into the final Act removed the taxation of unrealised gains, so only realised earnings are captured, added the indexed thresholds, introduced the second tier above $10 million, and deferred commencement to 1 July 2026. Content and commentary written against the 2023 model is now wrong in its most important details; anything your clients read should be checked against the enacted version.
The one-off cost base reset election
Because the final law taxes realised earnings, gains that accrued before the regime started needed transitional treatment. The Act provides it through an election: an SMSF can make a one-off, irrevocable, fund-level choice to reset the cost base of its CGT assets to their market value as at 30 June 2026, for Division 296 purposes, lodged with the fund's 2026-27 annual return.
Warning
The election runs on a valuation you may not have yetThe reset is only as good as the 30 June 2026 market values behind it. For listed shares that is a price feed. For direct property it is a valuation, and one the auditor and the ATO can stand behind. Funds weighing the election need those figures before the 2026-27 return is lodged, and a retrospective 30 June 2026 valuation prepared now, while that quarter's sales evidence is fresh, is a routine exercise.
Whether to elect is an accountant's call, member by member and fund by fund: it depends on accrued gains, expected disposals and the members' balance trajectories. The valuation is the input either way.
Division 296 is one of two 2026 reforms that turn on a market value at a fixed date. The other is the 1 July 2027 reset in the capital gains tax changes, and our CGT calculator shows what that reset does to a property gain.
SMSF holding property?
Retrospective 30 June 2026 reset valuations and annual 30 June compliance valuations, signed by a Chartered Accountant and Certified Property Valuer. $297 residential, $595 commercial, incl GST, 24 to 48 hours, Australia-wide.
Start your orderHow it worksWhy property-holding SMSFs carry the valuation burden
- SISR 8.02B already requires it. Fund assets must be reported at market value every 30 June, with objective and supportable evidence. Auditors have tightened on recycled or agent-letter valuations, and the ATO has flagged funds reporting identical property values year after year.
- Division 296 raises the stakes on the same number. The 30 June value now also determines whether members cross $3 million and how much of their earnings are taxed at the higher rates.
- The reset election adds a third use. One defensible 30 June 2026 valuation can serve the annual compliance file, the TSB calculation and the reset election simultaneously.
Our sister practice handles annual SMSF compliance valuations at SMSF Property Valuations; the Division 296 and CGT-event side lives here, covered in detail on our SMSF property valuation page.
Worked example
Note
Worked example (illustrative)Helen's SMSF holds a commercial premises valued at $2.4 million at 30 June 2026, plus $1.1 million in other assets, giving her a TSB of $3.5 million. Roughly $500,000 of her balance sits above the $3 million threshold, about 14 per cent of her TSB, so approximately that share of her realised earnings each year attracts the additional 15 per cent.
The fund bought the premises for $1.3 million in 2014. If the fund makes the reset election at the supported $2.4 million value, the $1.1 million of pre-regime growth is excluded from Division 296 earnings when the property is eventually sold. Without a defensible 30 June 2026 valuation, both the threshold test and the reset rest on numbers the auditor cannot verify and the ATO can dispute.
The dates that matter
| Date | What happens | Valuation implication |
|---|---|---|
| 30 June 2026 | Reset election value date; final pre-regime balance | Retrospective market valuation of fund property at this date |
| 1 July 2026 | Division 296 commences | |
| 30 June 2027 | First TSB test; annual SISR 8.02B value | Contemporaneous 30 June 2027 valuation |
| 2026-27 annual return lodgement | Reset election lodged, irrevocably | Valuation evidence must be on file before lodgement |
Note the separate reform running in parallel: the 1 July 2027 CGT changes for individuals and trusts do not apply the new indexation regime to complying super funds, which keep their one-third discount. Division 296 is the super-side event; do not let the two 2027 dates blur together in client conversations.
Common questions
What is Division 296?
An additional tax, enacted in March 2026 and commencing 1 July 2026, of 15 per cent on realised earnings attributable to the portion of a total superannuation balance between $3 million and $10 million, and a further 10 per cent above $10 million. Both thresholds are indexed and the first test is the balance at 30 June 2027.
Who pays the $3 million super tax?
Members whose total superannuation balance exceeds $3 million at 30 June, starting 30 June 2027. The tax is assessed on the member personally and can be paid from outside super or released from the fund.
What is the cost base reset election?
A one-off, irrevocable, fund-level election, lodged with the 2026-27 SMSF annual return, to reset the cost base of the fund's CGT assets to their market value at 30 June 2026 for Division 296 purposes. It quarantines pre-regime growth, and for property it depends on a defensible 30 June 2026 valuation.
Does Division 296 tax unrealised gains?
No. The unrealised gains component of the original 2023 proposal was removed in the October 2025 redesign and is not in the enacted law. Only realised earnings are captured, though market values still drive the balance test and the reset election.
