Division 296 Is Now Law: What It Means for Your Super (And What You Should Do Next)

 Alright, let’s cut through the noise. 

After a lot of back and forth, the government has finally pushed Division 296 through Parliament.

If you’ve been hearing whispers about a new “super tax,” this is it. But before you panic, let’s break it down in plain English — no jargon, no fluff. 

So, what actually changed?

At its core, Division 296 is a new tax aimed at people with very large super balances — we’re talking over $3 million. If that’s not you, you can probably relax. If it is (or might be one day), keep reading. Here’s the big picture: 

• From 1 July 2026, a new tax kicks in
• It applies to the earnings on the portion of your super above $3 million
• The extra tax is 15% (on top of existing super tax rules) taking it to 30%
• For very large balances (above $10 million), the rate climbs higher taking it to 40%

When does it come into effect?

The ATO doesn’t just take a quick snapshot of your super and call it a day. They check your Total Super Balance (TSB) at the start and end of the financial year — and then they use the higher number.

Why? Simple. To stop people from pulling money out late in the year just to duck under the $3 million threshold. Nice try… but no cigar.

So even if you dip below the limit by June 30, if you were above it earlier in the year, you could still get hit with the tax.

Now, there’s a one-off window of opportunity.

For the first year (ending 30 June 2027), they only look at your balance on that date. That means you’ve got a chance to tidy things up — if your super is nudging past $3 million, you can withdraw funds before then to get under the line and avoid the extra tax. 

Don’t assume you can game the system at the last minute. But right now, you’ve got a window to plan ahead — and that’s where smart moves count. 

The good news (yes, there is some)  

Earlier versions of this policy had a real sting in the tail — they wanted to tax unrealised gains. That means paying tax on paper increases in value, even if you hadn’t sold anything. 

That idea? Gone. 

Now, the tax is based on actual, realised earnings. That’s a much fairer and more practical approach, especially for those holding property or illiquid assets inside super.  

  A couple of other important tweaks  The final version also cleaned up a few things: 

• The $3 million threshold will be indexed over time, so inflation doesn’t quietly drag more people into the net
• The tax is assessed per individual, not per fund (important if you’ve got multiple super accounts)
• There’s an option to reset asset values at 30 June 2026, so you’re not taxed on gains from years ago
• Special rules apply for defined benefit funds, including the ability to defer tax

The “Reset Button” on Your Super Assets (30 June 2026) 

Now here’s a detail that doesn’t get enough airtime — but for the right client, it’s incredibly valuable. As part of Division 296, you may have the option to reset the cost base of your super assets to their market value at 30 June 2026. 

In plain English? You can draw a line in the sand. 

Everything your assets earned before that date can effectively be ignored for the purposes of this new tax.

Why this matters Without this rule, you’d have a problem. Imagine being taxed under Division 296 on gains that built up over 10, 15, even 20 years — long before this law existed. 

That wouldn’t pass the pub test. So instead, the government is saying: “We’ll only tax growth from here forward — not what happened in the past.” That’s what the reset is designed to do.

A simple example Let’s keep it real.

• You’ve got an SMSF
• Inside it is a commercial property
• You bought it years ago for $1 million
• By 30 June 2026, it’s worth $2.5 million

Now, fast forward a few years.

• The property is eventually sold for $3 million

Without the reset The total gain is:

• $3m sale price
• Less $1m original cost
• = $2 million gain

 A portion of that could be dragged into Division 296 calculations — including gains that built up long before the rules existed.

With the reset The cost base is lifted to the market value at 30 June 2026 ($2.5 million). So now:

• $3m sale price
• Less $2.5m reset value
• = $500,000 gain

Only that $500k post-2026 growth is relevant for Division 296 purposes. In some cases, keeping the original cost base might actually produce a better long-term outcome. Think of 30 June 2026 as a valuation checkpoint. A moment where you can: Lock in past gains, start fresh under the new rules and potentially reduce your future Division 296 exposure

Final word

This is one of those decisions that looks simple on the surface… but isn’t. Done right, it can save a significant amount of tax over time.Done wrong, it can quietly cost you. So before you press the reset button, make sure you’ve run the numbers properly. That’s where we come in. The timing matters more than you think  Here’s where it gets interesting. There’s effectively a grace period. Your exposure to this tax in the first year depends on your balance at 30 June 2027 — not 2026. That gives you a window. A window to: 

• Rebalance
• Withdraw (where appropriate)
• Restructure your affairs

After that, the door starts to close.   

So… should you be worried?  

Short answer: probably not.

This tax is targeted at a relatively small group of Australians with very large super balances ..But if you’re a business owner, or you’ve been diligently building wealth inside super for years, it’s worth paying attention. Because here’s the thing: even if you’re not at $3 million today, you might get there faster than you think.    

What should you do now?  

Don’t rush into anything. But don’t ignore it either. This is the time to: 

• Get a clear picture of your total super balance
• Understand how your assets are structured
• Think about whether super is still the best place for future contributions

 Most importantly, get advice before making any big moves. Knee-jerk decisions are where people come unstuck.   Division 296 isn’t the end of super as we know it. But it is a shift. A reminder that the rules can — and do — change. 

The smart move now isn’t to panic. It’s to get informed, stay flexible, and make deliberate decisions about where you build your wealth next. If you’d like help working through what this means for you, reach out — we’re here to guide you through it.

Until next time...