The Federal Government released exposure draft legislation on 19th December 2025 proposing significant changes to Division 296. Division 296 rules are aimed at reducing superannuation tax concessions for individuals with large superannuation balances. These reforms, if passed, will impact members with balances above $3 million.

Below, we outline the key updates and what they may mean for your planning.

Key Changes in the Exposure Draft Legislation

1. New Tiered Tax Rates for Large Balances

A higher tax rate will apply to realised earnings on large superannuation balances:

• Up to 30% on earnings allocated to the portion of an individual’s total superannuation balance (TSB) between $3 million and $10 million
• Up to 40% on earnings attributed to balances above $10 million

This represents a shift away from the previous single threshold model and imposes a more marginal structure.

2. Thresholds Indexed to CPI

Both the $3 million and $10 million thresholds will be indexed annually to the Consumer Price Index, ensuring they remain aligned with the Transfer Balance Cap and adjust for inflation over time.

3. Realised Earnings Basis

In a notable improvement to earlier drafts, Division 296 tax will be calculated only on realised earnings, such as interest, dividends, rent, and realised capital gains, not unrealised gains as included in previous drafts of this legislation.

This change reduces the risk of taxpayers being forced to liquidate assets simply to cover tax liabilities triggered by paper increases in value.

4. Transitional CGT Adjustments

Special transitional rules apply for assets held before the commencement date, with different methods applying to SMSFs and other complying super funds. These rules determine how existing unrealised capital gains will be treated when eventually realised.

5. First-Year Transitional Rule (2026–27)

For the 2026–27 financial year only, Division 296 tax will be assessed on the member’s TSB at 30 June 2027.

This means that if an individual’s balance is $3 million or below on 30 June 2027, they will not be subject to Division 296 tax for that year even if their balance exceeded the threshold on 30 June 2026.

6. Liability Assessed at the Individual Level

Similar to the prior drafts, but important to note, Division 296 tax will be levied directly on individuals, not at the fund level.

Taxpayers can choose to:

• Pay the liability using personal (non super) funds, or
• Release funds from their superannuation using an ATO issued release authority.

7. Further Clarification via Supporting Regulations

Draft regulations are expected to provide clarity on:

• Exclusions
• Attribution rules
• Valuation methodologies
• Transitional CGT adjustments

These details will be crucial for advisers and members of large balance funds to fully understand their obligations.

If you have any questions regarding the tax implications of Division 296, please get in touch with your Harris Black team member.

Disclaimer: this article was correct at the time of writing (January 2026). This legislation is still in draft and may change prior being passed through parliament. We will publish further information as it becomes available”.

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The Audit Shield Service provides financial protection for clients facing audits, enquiries, investigations, or reviews by the Australian Taxation Office or other government revenue agencies. As your registered tax agent, we offer this service as an optional safeguard. For more information or to opt in, please contact your Harris Black team member.

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28 February 2026

• Lodge tax return for non-taxable large and medium entities as per the latest year lodged (except individuals).
• Payment (if required) for companies and super funds is also due on this date. Payment for trusts in this category is due as per their notice of assessment.
• Lodge tax returns for new registrant (taxable and non-taxable) large or medium entities (except individuals).
• Payment (if required) for companies and super funds is also due on this date. Payment for trusts in this category is due as per their notice of assessment.
• Lodge tax return for non-taxable head company of a consolidated group, including a new registrant, that has a member who has been deemed a large or medium entity in the latest year lodged.
• Lodge tax return for any member of a consolidated group who exits the consolidated group for any period during the year of income.
• Lodge tax return for large or medium new registrant (non-taxable) head company of a consolidated group.
• Lodge and pay quarter 2, 2025–26 activity statement for all lodgment methods.
• Pay quarter 2, 2025–26 instalment notice (form R, S or T). Lodge the notice only if you vary the instalment amount.
• Annual GST return – lodge (and pay if applicable) if the taxpayer does not have a tax return lodgment obligation.
• Lodge and pay quarter 2, 2025–26 Superannuation guarantee charge statement if the employer did not pay enough contributions on time.

21 March 2026

• Lodge and pay February 2026 monthly business activity statement.

31 March 2026

• Lodge tax return for companies and super funds with total income of more than $2 million in the latest year lodged (excluding large and medium taxpayers), unless the return was due earlier.
• Payment for companies and super funds in this category is also due by this date.
• Lodge tax return for the head company of a consolidated group (excluding large and medium), with a member who had a total income in excess of $2 million in their latest year lodged, unless the return was due earlier.
• Payment for companies in this category is also due by this date.
• Lodge tax return for individuals and trusts whose latest return resulted in a tax liability of $20,000 or more, excluding large and medium trusts.
• Payment for individuals and trusts in this category is due as advised on their notice of assessment.