The 2026-27 Federal Budget confirms Division 296 begins on 1 July 2026, imposing an additional 30% tax on superannuation earnings attributable to balances above $3 million, and 40% on earnings attributable to balances above $10 million.

SMSF trustees can opt in to a CGT relief mechanism to rebase asset cost bases to market value at 30 June 2026. SMSFs remain exempt from the negative gearing changes. As a key policy setting, the 2026–27 Australian Federal Budget did not introduce new tax changes for SMSFs, and this provides stability for SMSFs with no changes to general super contribution rules or standard superannuation guarantee rates.

The 2026-27 Federal Budget is the one where Division 296 stops being talked about and starts being real. If you have a large superannuation balance — particularly if you are an SMSF trustee — the measures in this budget require immediate attention and action.

For the vast majority of Australians with balances well below $3 million, the key changes expected for the superannuation system did not include any new 2026-27 budget measures on contribution caps; instead, concessional contribution caps and non-concessional contribution caps had already increased from 1 July 2024, with no changes to tax rates on earnings within super, no changes to the superannuation guarantee rate, and no broader retirement settings affected here. The action is exclusively at the large-balance end.

What’s Changing: Division 296

The Tax

Division 296 imposes an additional earnings tax on superannuation balances above $3 million, effective from 1 July 2026 (i.e., applying to the 2026-27 income year). That timing also aligns with Payday Super starting on 1 July 2026, although it is not yet legislated into law:

Super Balance	Division 296 Tax Rate	Note
Up to $3 million	0% (no Division 296 tax)	Normal 15% earnings tax applies within super
Above $3 million (up to $10 million)	30% on earnings attributable to balance above $3m	In addition to the normal 15% within super
Above $10 million	40% on earnings attributable to balance above $10m	For the balance above $10m only
Important: Division 296 is not a wealth tax on your total balance. It is a tax on the earnings — the income, growth and returns — attributable to the portion of your balance above $3 million.

How Is It Calculated?

The ATO calculates your Division 296 tax based on:

1. Your Total Super Balance (TSB) at the start and end of the financial year
2. The proportional method — earnings attributable to the above-$3m portion are calculated as:

Taxable super earnings = Total super earnings × (Balance above threshold ÷ Total balance)

1. For an SMSF, “earnings” includes contributions, income, realised gains — and importantly, unrealised capital gains (paper gains on assets held but not yet sold). This is a significant departure from normal tax principles, and it is the reason the CGT relief provision is so important for SMSF trustees.

How Does It Interact With SMSF Assets?

For SMSF trustees, the most significant operational issue with Division 296 is that it taxes unrealised gains as part of the earnings calculation. This means:

• If your SMSF holds a property that has increased in value, that paper gain contributes to the Division 296 tax base — even if you haven’t sold the property and received no cash
• If your SMSF holds shares that have grown in value, the same applies
• The tax liability must be paid from somewhere — either from other liquid assets in the fund, or (in some cases) from external sources

That can affect how trustees manage investments, and while Division 296 may increase cash-flow pressure around property investment, the Limited Recourse Borrowing Arrangement framework remains unchanged.

SMSFs with illiquid assets — particularly commercial or residential property — face the risk of a liquidity squeeze: a tax bill arising from unrealised gains, with limited cash to pay it.

The Opt-In Capital Gains Tax (CGT) Relief: A Critical Planning Opportunity

The government has included an opt-in CGT relief mechanism for SMSFs. This allows SMSF trustees to elect to rebase the cost base of their fund’s assets to market value as at 30 June 2026. For discounted gains, the effective long-term capital gains tax rate within SMSFs remains 10%.

Why Does This Matter?

Without CGT relief, an asset purchased for $500,000 and now worth $1.5 million would have its entire $1 million gain in the Division 296 tax pool. Part of that gain occurred before Division 296 even existed — yet without rebasing, it would all be taxed under the new rules when eventually realised.

With CGT relief, the cost base is set to $1.5 million as at 30 June 2026. Only gains occurring after 1 July 2026 are included in future Division 296 calculations. SMSFs still receive a 33.3% CGT discount on eligible property sales, which reduces the overall effect of tax on later gains. Gains accumulated over decades before the new tax are effectively quarantined.

Who Should Consider Opting In?

CGT relief is most valuable for SMSFs that:

• Hold assets with significant unrealised gains (property and shares held for many years); if property is later sold in pension phase, CGT within the SMSF can be zero, subject to normal pension settings, which can support a smoother transition
• Expect to continue holding those assets for years to come
• Have total super balances above $3 million (or approaching $3 million)

CGT relief may be less valuable for funds that:

• Plan to sell assets soon regardless (the gain will be realised and taxed shortly either way)
• Hold assets with minimal unrealised gains (recently purchased at close to current value)
• Have balances well below $3 million (Division 296 may not apply to them)

Trustees should also factor in pension limits: the general transfer balance cap remains $1.9 million, even though the 2026 Budget refers to indexed transfer balance settings.

The Important Caveat

Opting in to CGT relief has consequences. The rebasing creates a higher cost base for the asset, which may reduce the future value of the normal 33.3% CGT discount that SMSFs still receive on eligible property sales. You’re trading a higher ongoing Division 296 tax base in the future against a slightly lower CGT discount benefit on eventual sale. In combination, that trade-off should also be weighed against the fact that, outside super, post-2026 individuals may face higher CGT on property sales, while new builds may instead choose between a 50% CGT discount or indexation under the broader budget changes, which may help save tax in some cases.

The right decision depends entirely on your specific asset values, projected holding periods, and projected super balances. This is a complex calculation that requires professional advice. BOX Advisory Services can model both scenarios for SMSF clients.

Deadline for Opting In

The opt-in CGT relief election must be made before lodging your SMSF’s 2025-26 tax return. Given that 30 June 2026 is the reference date for the rebasing, time is short. If you are an SMSF trustee with significant unrealised gains and a balance that puts you near or above $3 million, this needs to be on your agenda right now.

SMSF and Negative Gearing: No Change

The budget’s negative gearing changes — which restrict negative gearing to new residential builds from 1 July 2027 — explicitly exempt superannuation funds, including SMSFs.

If your SMSF currently holds a residential investment property and negatively gears that property within the fund, this arrangement is maintained. Rental losses inside an SMSF can support deductions that reduce taxable income at the 15% fund tax rate. The restrictions announced in this budget do not apply to super fund investment structures.

Personal tax savings can still occur when you contribute via concessional contributions and claim a tax deduction at your marginal rate, but that is separate from the fund-level treatment of rental losses. For more detail on the negative gearing changes for individual investors (outside super), see: → Negative Gearing & CGT Budget 2026 and consider the unique issues when using an SMSF for investing in cryptocurrency through super.

When Does Division 296 Start?

Measure	Date
Division 296 tax commences	1 July 2026 (applies from 2026-27 income year)
CGT relief rebasing reference date	30 June 2026
Opt-in CGT relief election deadline	Before lodging 2025-26 SMSF tax return
Payday Super starts	1 July 2026
Under the transition, employers must pay super at the same time as salary and wages, so SMSF members who are employees should expect more frequent contributions, and the delayed start allows time to prepare for the change.

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Who Does Division 296 Affect?

Directly affected:

• Any individual with a Total Super Balance above $3 million across all super accounts (SMSF, industry fund, retail fund, defined benefit)
• SMSF trustees where the member’s balance is above $3 million
• An estimated 80,000 Australians based on ATO data — less than 0.5% of super fund members

Monitoring required (approaching threshold):

• Individuals with super balances between $2 million and $3 million — particularly those receiving regular defined benefit indexed amounts or making large contributions
• SMSF funds with strong unrealised gains that could push a member’s balance above $3 million in coming years

Not affected:

• Anyone with total super balance below $3 million (the existing 15% earnings tax within super continues to apply)

Worked Example: How Division 296 Is Calculated

Scenario: Margaret, SMSF trustee. Total super balance at 30 June 2027: $4.8 million. Total fund earnings during 2026-27: $240,000.

Step 1: Calculate the above-threshold proportion:

• Balance above $3 million = $4.8m – $3m = $1.8 million
• Proportion = $1.8m ÷ $4.8m = 37.5%

Step 2: Calculate taxable earnings:

• $240,000 × 37.5% = $90,000 (earnings attributable to above-threshold balance)

Step 3: Calculate Division 296 tax:

• $90,000 × 30% = $27,000 additional tax

This $27,000 is on top of the standard 15% fund earnings tax already paid within the super fund. The combined effective rate on the above-threshold earnings is 15% + 30% = 45%.

Margaret’s SMSF must have sufficient liquid assets to pay this $27,000. If the fund holds primarily property, she may need to hold more cash or sell some assets to meet the obligation.

What Should SMSF Trustees Do Right Now?

Before 30 June 2026 (urgent):

1. Check your Total Super Balance. Add up all your super accounts. If you’re close to or above $3 million, Division 296 applies from 1 July 2026.
2. Assess your CGT relief decision. Review your SMSF assets for unrealised gains. Model what your Division 296 position looks like with and without the CGT relief rebasing. Contact BOX Advisory to run the numbers.
3. Review your liquidity. If your SMSF holds illiquid assets and you’ll be subject to Division 296, ensure the fund has sufficient cash or sellable assets to meet the annual tax liability.

From 1 July 2026:

4. Track your balance throughout the year. Division 296 is based on year-end and year-start balances. If the market fluctuates significantly, your position may change.

5. Review your contribution strategy. Making further large contributions into super when your balance is already above $3 million increases your Division 296 exposure. This does not mean stop contributing — but it means the calculus has changed.

6. For pension phase members: If you’re in pension phase, Division 296 applies to your pension account balance if it exceeds $3 million. The tax is separate from the tax-free status of pension income.

→ Related: Personal Income Tax Cuts 2026 → | Negative Gearing & CGT Budget 2026 → | Small business and investor tax advice from BOX Advisory Services →

→ Back to the hub: Federal Budget 2026-27: Complete Guide → | North Sydney tax accountant services →

Frequently Asked Questions

Does Division 296 apply to my SMSF if my balance is below $3 million? No. Division 296 only applies to the portion of your total super balance that exceeds $3 million. If your total balance across all super accounts is below $3 million, your SMSF earnings continue to be taxed at the standard 15% rate within the fund.

Does Division 296 tax unrealised capital gains? Yes. One of the most significant and controversial aspects of Division 296 is that the “earnings” calculation includes unrealised gains — the increase in value of assets held in the fund but not yet sold. This is a departure from normal tax principles (where you only pay CGT on realised gains) and is particularly significant for SMSFs holding property or long-term share portfolios.

What happens if I can’t pay the Division 296 tax from my SMSF? The Division 296 tax is assessed against the individual member (not the fund entity itself, though in practice the fund pays it). If the fund lacks liquidity, the member may need to make a voluntary contribution to the fund to cover the liability, or in limited circumstances, may be able to pay it from personal funds. This reinforces the need for SMSF trustees with above-$3m balances to maintain adequate liquidity.

Can I opt in to CGT relief for only some of my SMSF assets? The opt-in CGT relief can be applied selectively to specific assets — you do not need to apply it to all assets. However, the decision of which assets to rebase and which to leave at historical cost is a complex one that depends on each asset’s gain profile, projected holding period, and your overall Division 296 exposure. Seek professional advice before making this election.

Are there any changes to super contribution caps in the 2026-27 Budget? No. The 2026-27 Federal Budget did not announce any changes to superannuation contribution caps. The concessional contribution cap and non-concessional contribution cap remain as previously set. However, total super balance thresholds still restrict non-concessional contributions for members with very high balances — check the ATO’s current thresholds or speak with Box.

Do the broader trust tax reforms affect SMSFs? Generally, no. Complying superannuation funds are exempt from the new family trust tax rules. By contrast, discretionary trusts face a 30% minimum tax rate from July 2028, and full details are expected through official guidance and legislation. As a result, some investors may reconsider whether to invest through discretionary family vehicles or shift wealth-building strategies towards SMSFs rather than trusts. For more information, refer to the relevant government website when the final rules are released. Trustees should also consider how broader tax reforms affect estate planning, as well as the implications if they later decide on winding up an SMSF.

Does Division 296 apply in pension phase? Yes. If your total super balance — including your pension account — exceeds $3 million, Division 296 applies to earnings attributable to the above-threshold balance, even if those earnings are in a pension account that is otherwise tax-free. This is a significant point for retirees with large pension accounts.

Box Advisory Services: SMSF Specialists

Box Advisory Services has an SMSF specialist team that works with self-managed super fund trustees on establishment, compliance, investment strategy, pension planning, and Division 296 modelling, so clients can seek assistance while the measures provide greater certainty and security for SMSFs. If you’re unsure whether the CGT relief election is right for you, or want to model your Division 296 exposure, this is exactly the conversation we do every day to help protect your position.

Book a free 15-minute consultation with a BOX SMSF specialist — no obligation.

Last updated June 2026. This content is general in nature and does not constitute financial, tax or legal advice. Superannuation laws are complex and individual circumstances vary significantly. Please consult a licensed financial adviser, a qualified tax accountant or specialist tax advisor in Parramatta, and review our terms and conditions for advice specific to your fund and situation.