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”.
