Division 296 Exposure Draft:
What You Need to Know

On 19 December 2025, the Treasurer released the Exposure Draft for Division 296, with a short consultation period closing on 16 January 2026. While this has attracted attention due to both its timing and scope, it is important to note that this is draft legislation only and is not yet law.

The proposed changes are complex and will primarily affect individuals with higher total superannuation balances. They introduce new concepts around how earnings are calculated, how thresholds apply, and how tax would be assessed and collected at an individual level rather than through the superannuation fund.

Additional tax will be payable on a proportion of your taxable superannuation earnings if your Total Super Balance (TSB) just before the start date or at the end date exceeds either $3M or 10M. This is in addition to the normal tax levied within the superannuation environment as it currently stands.

The information below provides a detailed, technical summary of the exposure draft as it currently stands.

No action is required at this stage, and decisions should not be made until the consultation process concludes and the final legislation, if any, is passed.

Large and Extra-large Superannuation balances

The large super balance (TSB within the range of $3M and $10M) will be indexed in line with the consumer price index and will increase by $150K increments. Whilst very large superannuation balances (TSB in excess of $10M) will be indexed in $500,000 increments.

The tax will be imposed on the individual not the superfund, however you can request the amount to be released from the superfund.

The tax will be determined and issued by the ATO to be paid 84 days after the assessment is received by the individual.

Below is a list of considerations as we see them:

1. The tax will be a follows:
   1. a) 15% tax on earnings based as a percentage of the TSB exceeding the $3M threshold (large superannuation balance) and
   2. a further 10% tax on earnings based on a percentage of the TSB exceeding the $10M threshold (extra-large superannuation balance).
2. Bear in mind whilst tax inside super is generally 15% for those receiving an income stream or in receipt of large franking credits, the effective tax rate could be much lower; even as low as 0%.
3. The additional personal tax will still impose liquidity issues for those who have large lumpy assets who wish to release the tax assessment from super.
4. Market valuation of assets will be integral for this tax; auditors will require third party support for property and any unlisted investments. This will need to be provided annually with verifiable support required. Consideration of the types of investments that may not easily be valued may not be best suited inside of the super environment. Holding such investments at cost will be problematic.
5. TSB includes all superannuation interests combined, includng SMSF, industry and retail superannuation balances. This is a per member additional tax. It also includes any reversionary pensions you are entitled to as a result of the death of another person.
6. It looks at the greater of the opening or closing balance to ensure pension or lump sum payments drawn down during a year in an attempt to avoid the Division 296 tax will still be captured.
7. Transitional arrangements will apply for the first year being FY ended 30 June 2027, so that only the closing balance is relevant, this will allow those who can withdraw amounts from the super environment to do so if they chose too.

Taxable superannuation earnings

The good news is the associated earnings doesn’t include unrealised capital gains.

The formula for the tax will apply as a proportionate percentage of your total superannuation in excess of the large and extra-large superannuation balance balance x total superannuation earnings that are greater than nil.

This is best shown by way of example, say your TSB at the end of the year is $11m and your total superannuation earnings are $300,000.

Large superannuation balance threshold $3M-$10M
($11M-$3M)/$11M x 100%=72.73% taxed x $300,000 x 15% tax rate= $32,728.50 plus
Extra- Large Superannuation Balance threshold > above $10M
($11M-10M)/$11M x 100%= 9.09% taxed x $300,000 x 10% tax rate = $2,727.
Total Division 296 Tax = $35,455.50.

Definition of funds earnings for Division 296

Relevant taxable income or loss year- Assessable contributions + Net exempt current pension income- non arm’s length income (NALI) + pooled superannuation trust component.

Whilst this is the full formula for most of you NALI and pooled superannuation interest will not be relevant and will not be discussed in this newsletter.

The definition does show it adds back any tax-exempt current pension income amounts for those funds that are in pension phase. It will also allow you to obtain the full deduction of expenses that one would have been entitled to had the fund not been in pension phase in the first instance. Noting the full expense deduction cannot reduce the income below zero.

In essence it rewinds any pension exemption entitlements, so you are treated as if in accumulation phase.

For example, if the exempt pension income was $9500 and the exempt deductions amounted to $11,000, the result can only be zero.

It deducts concessional contributions as this is not considered earnings of a fund and would be taxed additionally by Division 293 if applicable.

Earnings for Division 296 will include the gross-up of franking credits and foreign tax offset.

Capital Gains Tax (CGT) adjustment for Division 296

One of the biggest unknown factors that had been questioned was how realised capital gains would play out in the definition of funds earnings, as it didn’t seem reasonable that capitals gains as a result of ownership of assets prior to the tax should be caught in the proposed new tax.

There will be an adjustment for any capital gains that applies to the disposal of assets sold after 1 July 2026 on assets that were held at 30 June 2026, so that only future capital gains will be impacted by Division 296.

There will be a onetime election that needs to be made in the approved form no later than by the due date for lodging the funds tax return for the FY ended 30 June 2027, which would ordinarily be 15 May 2028.

Key points around this:

• You must make the election using the prescribed form for the CGT adjustment provisions to apply.
• Once the election is made it cannot be revoked.
• Records must be maintained.
• Applies to all assets held by the fund at 30 June 2026, you can’t cherry pick assets.
• All assets will take on the market value at 30 June 2026, including those whose cost base is higher than the market value.
• Unlike the CGT reset of 30 June 2017, the funds cost base and date of acquisition will not change, meaning the normal tax within the fund will still apply. It is only relevant when determining the funds taxable superannuation earnings for the Division 296 calculation.
• Applies at the fund level regardless of whether you are a member yet or have a balance that could be affected, i.e. $500K balance, the election can be made.
• Ensuring all tax years are up to date will be critical, as we believe the election will most likely form part of the tax return, but no details have been provided at this stage.
• Eligibility is not based on your total superannuation balance value or your age.
• It means for those that make the election it is only future capital gains that will be impacted not historical.
• The normal CGT discount rules of 1/3 will apply once the asset is sold.
• We may see a shift from high income yield returns to high capital growth investments.

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The above summary is intended to be general in nature. Should you believe that any of the above matters may be relevant to you or your Group’s particular circumstances, please discuss the specific details with your Slomoi Immerman Partners adviser.