Division 296 and your SMSF: what we do about it

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 runs on are produced inside the fund, by whoever prepares its accounts and lodges its annual return. For the self-managed super funds we look after, that is us, and this is the part we own.

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.

The tax is the member's, but the numbers are the fund's

Although Division 296 tax is assessed to the individual, SMSF trustees will need to provide information to us on their members that have a TSB exceeding the LSBT for that to happen. 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.

Where that reporting goes is the point: you should report your in-scope member's relevant super earnings in the self-managed superannuation fund annual return from the 2026-27 income year onwards. It is a line on the return we prepare, not something the member does separately. The ATO's guidance on Division 296 tax for SMSFs sets out the fund's part.

Where a member's interest is a defined benefit pension, an actuary will need to be engaged to work out the amount attributable, subject to some exceptions. That is one more party to appoint, brief and chase inside a lodgment deadline.

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's answer is to put it on the member: if you are a member of a SMSF and you think the combined value of your super interests will be greater than the LSBT, you should let your SMSF know. Our answer is that we do not wait to be told. We ask the members of the funds we administer, before we finalise the year.

The cost of not asking is specific. If you do not report your member's relevant super earnings on the SMSF annual return, we will notify you of your in-scope members and you will need to amend the SMSF annual return. That is rework on a lodged return, at the fund's expense, months after the 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.

A 30 June valuation is now a threshold test

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

There is a decision in this measure that a fund gets exactly one attempt at. To calculate Division 296 fund earnings, an SMSF can elect to make a CGT adjustment to the cost base or reduced cost base of its CGT assets to the market value of those assets as at the end of 30 June 2026, which recognises value accrued before the measure started.

The terms are strict. The election applies to all CGT assets held by the SMSF at the end of 30 June 2026, must be made by the due date of the SMSF's annual return for the 2026-27 income year, and cannot be revoked. It is not lodged with us or with the ATO. The fund keeps the record.

That valuation date has already passed. The 30 June 2026 figures are the ones in the 2025-26 accounts being prepared right now, and they are the figures an election made next year will rest on. Getting them right is this year's job, not next year's, and a value reconstructed after the fact is the weakest version of a number anyone will ever ask the fund to defend.

What the fund should be keeping now

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 we would tell a member near the threshold

Three things, and none of them are about what to invest in.

Get this year's valuations to a standard you would be comfortable defending in three years, not the standard that gets an audit signed in three weeks. Tell us in round numbers what super you hold outside this fund, before the accounts are finalised rather than after. If your interest in the fund is a defined benefit pension, assume an actuary is needed and start early.

None of that is advice on whether to have an SMSF, what it should hold, or whether to move anything before a threshold date. Those are financial product advice, and the firm does not hold a licence to give it. Where product advice is required, we work alongside appropriately licensed financial advisers, and we tell you the tax, liquidity and record-keeping consequences of what you decide.

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.

Your SMSF auditor must be independent, so we arrange one rather than acting as one, and we manage the engagement through to the signed report. That leaves one point of contact for the accounts, the return, the auditor and, where the fund needs one, the actuary.

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.