- Division 296 applies from 1 July 2026 to members with total super balances above $3 million.
- The SMSF accounts, valuations and annual return provide key figures for the calculation.
- We help keep the annual records clear and work with your advisers where their advice is needed.
From 1 July 2026, Division 296 reduces the tax concessions on super earnings for people whose total super balance sits above $3 million. The tax is assessed against the member, not the fund. The figures it uses come from the fund's accounts and annual return, which is why good records and annual work matter.
What the changed measure actually does
The measure was announced in February 2023, redesigned in October 2025, and is now law. Treasury describes the October changes as introducing a second threshold above $10 million, indexing the two large balance thresholds, and moving to a realised earnings approach that aligns to existing income tax concepts. The commencement date moved to 1 July 2026.
Both halves of that are on the record: Treasury's summary of the October changes, and the ATO's page on the Better Targeted Superannuation Concessions, which states that the measure is now law.
That last point is the one worth holding on to. The version that passed taxes earnings on a realised basis, built on income tax concepts the fund's accounts already use, rather than on movements in what assets are said to be worth.
For the 2026-27 income year the large super balance threshold is $3 million and the very large super balance threshold is $10 million. Division 296 tax applies at a rate of 15% to a member's taxable super earnings, with an additional rate of 10% on the very large super balance earnings component. Both thresholds are indexed in line with CPI.
Indexation is stepped rather than continuous: the lower threshold moves in $150,000 increments and the upper one in $500,000 increments. A member sitting just over a threshold is not automatically over it forever. The ATO sets out both rates and the indexation steps under Division 296 tax on large super balances.
How does Division 296 reach an SMSF's annual return?
SMSF trustees report relevant member earnings to the ATO. The fund works out its Division 296 fund earnings for the year, attributes a share to the in-scope member's interest, and reports that as the member's relevant super earnings.
The ATO's guidance on Division 296 tax for SMSFs places the fund's earnings reporting in the annual return from 2026-27. The member's assessment is separate from the fund's reporting.
An actuary's certificate is generally required to attribute Division 296 earnings in a small fund. Regulation 296-65.03(6) provides exceptions for nil fund earnings and certain funds with only one member. The requirement is not confined to defined benefit pensions.
Why the fund cannot see the trigger on its own
Here is where funds will get caught. Your total super balance is the sum of the TSB values of all your Australian super interests, not the balance of one interest in one fund. A member with a large SMSF balance and a second account elsewhere can cross the threshold on a total no single fund can see. That is how the ATO defines it in how Division 296 tax is calculated.
The ATO advises members to notify their SMSF if their combined super interests are expected to exceed the threshold. Super held elsewhere can matter even when the SMSF balance alone is below it.
The ATO says that if relevant member earnings are missing from the SMSF annual return, the return will need to be amended. That creates extra work on a return that has already been lodged, often months after the annual file was closed.
One quirk to know: limited recourse borrowing arrangement amounts are disregarded when determining a member's TSB for Division 296 tax purposes, even though some LRBA amounts do count towards a total super balance for other rules.
Why is the 30 June valuation important?
Trustees are required to value all fund assets at market value when preparing their fund's financial accounts and statements. That has not changed. What has changed is the weight those numbers carry, because the market value of assets at 30 June allows the calculation of individual members' total super balances, and that balance is what decides whether Division 296 applies at all.
The ATO's guide to valuing SMSF assets calls the standard a fair and reasonable process. A valuation generally meets it when it is based on objective and supportable data, considers all relevant factors, is undertaken in good faith, uses a rational and logical process, and is capable of explanation to a third party. That last requirement is the one that fails in practice.
For real property, one number from one source is usually not enough. Generally, it is not sufficient for valuations to be based on only one item of evidence, and where an agent appraisal or online report is the sole source relied on, the valuation should list the comparable sales it relied on.
Keep evidence of how the valuation is determined. It goes to the auditor, and under Division 296 it is also the working behind a threshold test that will be revisited years later.
The election that can only be made once
An SMSF can elect to use 30 June 2026 market values for the CGT adjustment in its Division 296 earnings calculation. The ATO's guidance generally limits this to directly held assets, with exceptions for custodian and tax look-through arrangements, including LRBA trusts. It does not reset the underlying assets of an interposed entity.
Under section 296-50 of the transitional law, the election is made in the approved form, covers all eligible fund CGT assets held at 30 June 2026, is due by the 2026-27 return deadline and cannot be revoked. The adjustment is for Division 296 earnings only; it does not reset cost bases for ordinary fund income tax. The fund retains the election, which the ATO says need not be sent to it.
The transitional law also requires the asset to remain an asset of the fund from 1 July 2026 until immediately before the relevant CGT event. At 11 November 2026, the ATO's SMSF page still says a law companion ruling on earnings and the CGT adjustment is being drafted. The legislation and regulations are already in force.
What records does the fund need to keep?
A Division 296 assessment does not arrive with the return. Division 296 tax assessments for the 2026-27 income year will begin issuing in the later half of the 2027-28 income year, and the tax is generally due and payable 84 days after the ATO issues the notice of assessment. The fund's records have to survive that gap intact.
The ordinary SMSF record-keeping requirements still set the floor. Accounting records, operating statements and statements of financial position are kept for a minimum of 5 years. The trust deed, trustee minutes and the investment strategy are kept for a minimum of 10 years.
A fund that makes the cost base election carries an extra obligation on top. For each CGT asset to which the election applies, it must keep records of each element of its cost base and reduced cost base for 5 years after it becomes certain that there can be no further CGT events in relation to any of those assets.
What generally matters for a member near the threshold?
The key questions are about the fund's figures and records, not what a member should invest in. A valuation, other super interests and a defined benefit pension can each change the information needed for the annual work.
Examples of matters that can affect the result include valuations the fund can support, information about a member's other super interests, and an actuary's certificate where required. How the rules apply depends on the fund and the member's balances.
Where you need financial product advice, we work with your advisers and can recommend someone from our network.
Where this sits in the annual cycle
We prepare the fund's financial statements and its annual return, establish the member figures the measure is assessed on, and arrange the annual audit. The ATO's rules for your SMSF auditor frame that last part.
You must appoint an approved SMSF auditor to audit your SMSF each year. Before the auditor can start the audit, you must provide them with a statement of financial position and an operating statement. Those are documents we produce, and getting them to the auditor in a usable state is part of the job.
An SMSF auditor must be independent. Walch In Practice advises on SMSF strategy and structure, and arranges the auditor. We manage the engagement through to the signed report, so the accounts, return, auditor and any actuary work together through one familiar team.
Our superannuation and SMSF work covers the annual cycle, and our audits page sets out how the independent audit is arranged. If a member of your fund is near either threshold, talk to us before this year's figures are finalised, not after.