Division 296: Superannuation, tax and estate planning – top 10 issues

Division 296 is now enacted law. Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 and the Superannuation (Building a Stronger and Fairer Super System) Imposition Act 2026 received Royal Assent on 13 March 2026 inserting Division 296 into the Income Tax Assessment Act 1997. While the legislative framework is now settled, key regulations are still to be finalised. Division 296 operates from 1 July 2026, introducing an additional tax regime for large superannuation balances. Clients with superannuation balances approaching or exceeding $3 million should treat the period to 30 June 2026 as a planning window to mitigate unintentional tax outcomes and consider their entity structures by aligning their death benefit planning to their estate planning and succession intentions.

Most individuals do not need to withdraw or restructure now. Division 296 does not apply until balances are first tested at 30 June 2027. Individuals may make an election up to the due date of the 2027 return, and anyone who does so will lock in asset valuations as at 30 June 2026. 

Most clients do not need to rush

The priority is early preparation, with action taken only if required. Before 30 June 2026, the focus should be preparation rather than implementation. This includes identifying potential exposure, confirming asset valuations, assessing whether a CGT cost base reset adds value, and reviewing estate planning structures to ensure they continue to operate as intended once Division 296 applies.

What you should do now, and what you can defer

What to prioritise before 30 June 2026

• In practice, clients with $3 million plus in super or combined superannuation balances held between spouses, should work through four steps now:

1. 1. Map exposure across all super interests, including pensions and potential reversionary interests.

   2. Confirm asset valuation readiness for 30 June 2026, particularly for illiquid SMSF assets where valuation methodology will matter.

   3. Decide whether to elect the 30 June 2026 SMSF cost‑base reset, recognising it is all‑or‑nothing and irreversible.

   4. Stress test your estate plan against Division 296 outcomes, including reviewing your estate and succession planning arrangements to identify opportunities that may be brought forward or simplified.

Top 10 issues to consider

1. What is Division 296?

Division 296 introduces an additional tax on superannuation earnings for individuals with large superannuation balances. The policy intent is to reduce the scale of concessional outcomes for very large superannuation balances. The reforms change the after‑tax outcomes and creates new administrative steps, including tax funding decisions.

2. Who does it apply to?

It applies where Total Superannuation Balance (TSB) exceeds $3 million and the individual has taxable superannuation earnings, including interests held as reversionary beneficiary. A further 10% applies above $10 million on the relevant proportion. The legislation indexes thresholds to CPI in increments. Division 296 captures clients who may not see themselves as “high income” but have concentrated super wealth, and it can affect surviving spouses through reversionary arrangements.

Under the original policy design, the $3 million and $10 million thresholds were fixed. The revised legislation improves this by indexing both thresholds annually to the Consumer Price Index (CPI), so they will increase over time in $150k and $500k increments respectively.

Like Division 293, Division 296 is a personal tax assessed to the individual, not a tax paid by the superannuation fund itself.

3. How is the tax calculated?

It taxes a proportion of earnings based on how far TSB exceeds the thresholds. For 2026–27, a transitional rule uses only the closing balance. In all other years, TSB is measured at the start and end of the financial year.

4. How are “earnings” calculated?

Earnings are calculated by aggregating the earnings from all their superannuation interests and attributing fund-level earning to members on a fair and reasonable basis. For Self-Managed Superannuation Funds (SMSFs), this may require an actuarial certificate. Division 296 can apply even where balances have not increased significantly, because the rules focus on earnings rather than mere balance movements.

5. What does it look like in practice?

Have a look at the example below.

Consider an individual with a TSB of $12 million at year end and earnings of $500,000: The tax payable on the proportion above $3 million is:

(12m – 3m)/12m = 75%; $375,000 (75% of earnings) taxed at 15% = $56,250.

The tax payable on the proportion above $10 million is:

(12m – 10m)/12m = 16.67%; $83,350 (16.67% of earnings) taxed at 10% = $8,335.

The total Division 296 tax liability is the sum of these components, which is $64,585 for the year.

Clients need forward cash planning. The right decision is often about liquidity and timing, not just the headline tax rate.

6. The 30 June 2026 SMSF ‘cost base reset’

SMSFs have a one‑off opportunity to reset the cost base of assets held at 30 June 2026 to their market value for Division 296 purposes. The election is made by the trustee and must be made by the time the fund’s 2026-27 tax return is due. The reset applies to all assets, is irrevocable, and requires records to be kept for five years. The reset does not apply to underlying assets held indirectly through trusts or companies.

This is the key decision before 30 June 2026. It can materially reduce future Division 296 exposure, but it can also produce adverse outcomes for assets in a loss position because Division 296 does not allow capital losses to be carried forward. Funds may need two sets of records because ordinary CGT keeps the original cost base while Division 296 uses the reset value.

7. Whether assets should remain in super or move

Assets held indirectly through trusts or companies do not benefit from the Division 296 cost‑base reset. In some cases, restructuring or transferring assets out of superannuation before 1 July 2026 may ensure future gains are not caught by Division 296. However, transfers of assets can trigger immediate income tax, CGT, stamp duty, GST, and loss of concessional superannuation tax treatment on income earned from those assets.

Withdrawing funds from superannuation should not be driven by tax outcomes alone. Decisions must also account for family arrangements, estate planning intent, succession planning and broader commercial structures. Restructuring is not a default response. It requires coordinated advice that balances tax efficiency with estate, structural and family outcomes. 

8. Death benefit: BDBNs and reversionary pensions

A binding death benefit nomination (BDBN) can provide certainty where the SMSF deed permits the trustee to be bound. It allows members to control who receives superannuation benefits and how they are paid.

Reversionary pensions operate automatically and commonly pass to a surviving spouse. While this has traditionally been viewed as a low‑risk and efficient outcome, Division 296 changes the risk profile. Where spouses have aggregated superannuation balances approaching or exceeding $3 million, a reversionary pension can push the surviving spouse over the Division 296 threshold and trigger unexpected tax exposure. Timing differences in how reversionary interests are treated can further exacerbate this outcome.

Clients should actively assess whether reversionary arrangements remain appropriate in light of combined balances, asset composition and post‑death tax outcomes under Division 296.

9. Executor and trustee risk

Trustees must pay death benefits as soon as practicable under regulation 6.21 of the SIS Regulations 1994, commonly within six months, although estate disputes can delay administration. Division 296 assessments may issue months after probate and distributions, creating a real risk of personal liability for executors if the estate does not retain sufficient funds to meet the tax. This risk is heightened where superannuation is paid outside the estate but the tax burden falls elsewhere. Estate plans should therefore be reviewed to ensure adequate provision for Division 296 and other tax liabilities, so executors can administer the estate smoothly and without personal exposure.

10. Compliance and payment requirements

Division 296 tax is due 84 days after the ATO issues an assessment. Individuals can request a withdrawal from their superannuation fund to pay the tax. Clients need a funding strategy that does not force rushed asset sales, particularly in SMSFs with illiquid assets.

Key takeaway

Division 296 is not a tax issue to be addressed in isolation. It is an estate planning and governance issue that demands proactive, whole‑of‑balance‑sheet thinking. Most clients should not rush to withdraw or restructure today. They should use the window to 30 June 2026 to confirm valuations and documentation, make a considered decision on the SMSF cost base reset, and test whether their estate planning, death benefit, structures and liquidity will operate as intended once Division 296 applies. The objective is not to minimise tax at all costs, but to preserve estate planning intent, manage family and succession outcomes, and mitigate risks before Division 296 results in unintended consequences.

Any questions or for a discussion, please the authors.

Authors: Lisa To & Aarav Kumar 

 

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.