Late last year the Government released the revised Division 296 exposure draft legislation for public consultation.
The most significant change to the proposed tax is the removal of taxation on unrealised capital gains, a decision that substantially reduces the impact of Division 296—particularly for the SMSF sector, which was most exposed under the original proposal.
Key changes in the revised framework
Under the new approach, the calculation of a member’s Division 296 tax liability will depend on the type of superannuation fund they hold. This is because different fund structures have varying capabilities to identify realised earnings attributable to individual members. Importantly, the treatment of capital gains accrued before 1 July 2026 and the allocation of realised earnings will reflect these differences.
The SMSF Association will attend a Treasury consultation session this month to discuss key elements of the draft legislation and share early feedback. Their priority is ensuring that the calculation and attribution of realised earnings is equitable for all affected members, while keeping cost and complexity to a minimum.
Summary of key elements
1. Two-tier threshold structure
- Individuals with a total super balance above $3 million will face an effective tax rate up to 30%.
- A new second threshold applies for balances above $10 million, with a headline rate of 40%.
- Both thresholds will be indexed over time.
2. Shift to a realised earnings model
- Taxation of unrealised capital gains has been removed.
- Division 296 will now apply only to realised earnings, aligning more closely with existing income tax principles.
3. Delayed commencement
- The measure will take effect from 1 July 2026.
4. Exclusion of pre-policy gains
- Capital gains accrued before 1 July 2026 will be excluded from the calculation.
Our Super & SMSF specialists, Shona Sherman and Danielle Barrow, are closely monitoring these developments and are available to discuss how this may affect your strategy. Contact HFB today to review your position and plan ahead.