Division 296: considerations for high-balance superannuation funds

The introduction of Division 296 tax from 1 July 2026 represents a significant development for individuals with high superannuation balances.

The legislation provides that an individual will be subject to Division 296 where their total superannuation balance exceeds $3 million at either the start or end of a financial year.

Accordingly, a member with an opening balance of $3 million or more will remain liable for Division 296 for that year even if they reduce their balance to below the $3 million threshold prior to year-end. This differs from earlier versions of the measure.

Transitional rule (2026–27)

An exception applies for the 2026–27 income year, where only the closing balance will be relevant in determining whether Division 296 applies.

This provides a limited window for members to consider reducing their total superannuation balance below the Division 296 threshold prior to 30 June 2027, in which case liability to Division 296 should not arise in that year.

The transitional rule provides some time to consider whether, and to what extent, benefits should be withdrawn. However, particularly for members with materially higher balances (for example, in excess of $10 million), the availability of this window does not necessarily mean that deferring action until 30 June 2027 will produce the most favourable outcome.

In some circumstances, bringing forward structural review prior to 30 June 2026 may be important to ensure that relevant actions have been considered and positions established, so that members are in a position to implement any required restructuring at an optimal time. This is particularly relevant in the context of funds with material unrealised gains or concentrated asset positions.

Practical observations

Early assessment of potential exposure, together with a considered approach to superannuation structuring and structural review, is likely to be important in managing outcomes over time.

While the transitional rule provides a window to reduce balances prior to 30 June 2027, the appropriate timing of any action will depend on the specific circumstances. For some members — particularly those with materially higher balances — earlier consideration and positioning may allow for more effective implementation.

We have also separately considered the practical operation of the Division 296 CGT reset for SMSFs, including indirect investment structures, valuation requirements and longer-term planning considerations.

We have also considered indexed superannuation thresholds from 1 July 2026 and related contribution and balance management considerations.

We welcome enquiries from professional advisers and private clients seeking to assess the potential application of Division 296 in their circumstances.