Australia’s new Division 296 tax will reshape how high-balance superannuation members plan their future. While the broad framework has been announced, many finer details are still to come so trustees should start preparing, but avoid overreacting until the legislation is finalised.

1. The New Landscape

From 1 July 2026, Division 296 will introduce an additional tax on earnings for individuals whose Total Super Balance (TSB) exceeds certain thresholds.

*Assumes the usual 15 % tax on fund earnings applies, plus the Division 296 overlay on the portion above the thresholds.

2. How It’s Expected to Work

• The additional tax will be applied to realised earnings (such as interest, dividends, rent and realised capital gains), not unrealised gains as initially proposed.
• The ATO will calculate the Division 296 amount for each individual annually, based on the member’s share of fund earnings that relate to their balance above the thresholds.
• Funds will need a documented, “fair and reasonable” attribution method to allocate earnings between members.
• Members can choose to pay personally or release the tax from their super fund.

3. What’s Still Unclear

While the overall design is known, several operational elements remain under development. Key areas where further guidance or regulations are expected include:

• Timing of capital gains: whether only gains arising after 1 July 2026 will be captured, or if pre-existing unrealised gains realised later will also count.
• Treatment of pensions: how earnings on pension balances will be attributed and whether pension phase tax-free income will be included.
• Indexation of thresholds: the practical timing and method for CPI adjustments to the $3 million and $10 million limits.
• Attribution methodology: how the ATO will assess “fair and reasonable” allocations across multiple members and different account types.

In short, the broad direction is clear, but the fine print isn’t. Acting too early, such as liquidating assets or restructuring pensions, could trigger unnecessary tax or compliance issues once the final rules are clarified.

4. Strategic Planning Considerations

Review member balances
Monitor projected balances for each member to identify those likely to exceed $3 million by mid-2026.

Re-contribution and equalisation strategies

Where appropriate, consider re-contribution or spouse equalisation to balance member outcomes and manage long-term exposure.

Manage realised gains
Plan the timing of large asset sales, particularly those close to the transition date.

Update fund policies
Document the fund’s “fair and reasonable” attribution method now to support future compliance.

Keep perspective
While Division 296 is significant, its practical effect depends on each member’s circumstances. Careful modelling will separate short-term noise from real impact.

5. Next Steps for Trustees

1. Undertake a Division 296 review with your adviser to estimate your likely exposure.
2. Confirm fund data accuracy – including cost bases and member balances for CGT tracking.
3. Review pension structures and potential commutations before 1 July 2026.
4. Stay informed – detailed legislation and ATO guidance are still pending.