Division 296 tax strategies: five priorities to plan now

Division 296 tax took effect on 1 July 2026. While most SMSF trustees with balances above $3 million know the new rules are now in place, many have yet to act because the financial impact will not become clear until after the end of the financial year. 

This article outlines five Division 296 tax strategies to consider, including the order in which to assess them. 

First, the basics. This isn't a flat 15% tax on Total Superannuation Balances (TSB’s) above $3m or 10% on balances above $10m. It's a new tax on the proportion of your balance above the $3 million and $10m thresholds, and it applies to the funds realised earnings attributed to members with a TSB above the thresholds.   

Div 296 doesn't mean members should remove funds above $3m from the superannuation system, it just introduces a new tax, which changes how members should plan.  

There are five decisions to make, and some have greater impact and consequences than others.  

Treat these as your Division 296 planning priorities. 

If you have a specific question, jump straight to the FAQs. 

Executive summary 

• Division 296 applies to anyone whose TSB exceeds $3 million. It counts every superannuation interest you hold, not just your SMSF and it is based on the highest of either your opening or closing TSB for the financial year.  

• The CGT cost base election is available to SMSF trustees only, is irrevocable, and must apply to all assets in the fund, you can't be selective. For funds with long-held appreciating assets, tax savings can be significant. 

• Transitional year FY2026/27 allows affected members to withdraw from superannuation to avoid being in-scope for Division 296. It is the only year that members can use this option without impact, as the ATO will only use the members closing TSB for Div 296 assessment. 

• Withdrawal from superannuation to avoid Division 296 is rarely the right move. Members could incur increased costs and other taxes, and the TSB tests and contribution caps mean most affected people can't return funds to super. 

• Clients should review their death benefit nominations, because some nominations can result in the surviving spouse creating a Division 296 tax liability immediately following the death of their partner. 

• Division 296 tax is a personal income tax liability of the member, but payment can be released from your super fund. If your super fund holds illiquid assets, liquidity planning needs to happen to ensure your fund can release the payment if required. 

Priority 1: Are you in-scope for Division 296? 

The first priority is to understand your TSB. Your TSB is tested on 30 June each year and is a measure of all of your superannuation interests, (you can find your TSB on the ATO portal via your MyGov account). Division 296 will use the higher of your opening or closing TSB. If your TSB exceeds $3 million at that date, Division 296 applies to the attributed earnings on the proportion above the threshold.  

The first assessment is based on your SMSF balance at 30 June 2027. 

The part most SMSF members underestimate is what counts toward the TSB. Every superannuation interest you hold is included: 

• SMSF accounts 

• Industry and retail fund accounts 

• Defined benefit interests (likely valued using the family law split method, though regulations remain in draft) 

• Old endowment policies you may have forgotten about 

How to check your TSB 

Log into myGov and link to your ATO account or ask your tax agent to pull the figure from the ATO's records. Do this ahead of the 30 June test each year. Confirming where you stand is the foundation. Every other step in this article depends on knowing whether you're in scope.  

Not sure where you sit? Book a Division 296 Impact Assessment. 

Priority 2: Review the Capital Gains Tax (CGT) cost base election 

This applies to SMSF trustees only. It's irrevocable and it applies to every CGT asset in the fund simultaneously. There's no picking and choosing which assets to include. 

What the election does 

The CGT cost base election adjusts the cost base of every CGT asset in your super fund for Division 296 purposes to its market value at 30 June 2026. This doesn't affect your fund's ordinary tax position and the practical effect is that future gains above the adjusted value are used to calculate your Division 296 liability, rather than gains from the original purchase price. 

Hypothetically speaking: 

A commercial property was purchased years ago for $850,000. At the reset date its market value is $1.9 million, and it later sells for $2.3 million. 

• Without the election: the Division 296 gain is calculated on the full $1.45 million appreciation from the original cost 

• With the election: only the $400,000 gain above the reset value is counted 

• Estimated tax saving from making the election: approximately $65,000 

The trap to watch 

The election locks in the 30 June 2026 market value as the new cost base. Div 296 capital losses can't be used to offset other fund income and can't be carried forward. For super funds with volatile assets, the election requires careful modelling across the whole portfolio before committing.  

Lodgement deadline: the election must be made by the time you lodge your 2026/27 fund annual return. Miss that window and the opportunity is gone permanently.  

Book a Division 296 Impact Assessment to run the numbers with a Findex SMSF specialist. 

Priority 3: Assess whether your current structure remains appropriate 

Once the scope question is answered and the cost base election is modelled, the next question many trustees ask is: should I move assets out of super altogether? The short answer is: probably not, but the reasoning matters. 

Why withdrawal is rarely the right move 

Withdrawal as an exit strategy only works during the transitional year (1 July 2026 to 30 June 2027), and only if you've already met a condition of release. For members who haven't yet retired or reached preservation age, this option simply isn't available. Even where withdrawal is legally possible, the costs compound quickly: 

• Capital gains tax on assets that need to be sold to fund the withdrawal 

• Stamp duty and brokerage on property and share transactions 

• Loss of the concessional 15% earnings rate that super provides 

• TSB tests and contribution caps that prevent most people putting money back once it's out 

As we discussed during the Div 296 webinar, super is still one of the most tax effective structures available in Australia.  

Superannuation also provides asset protection that other structures don't, SMSF interests are generally protected from creditors in bankruptcy, a consideration that's particularly relevant for business owners and professionals with personal liability exposure.  

The real risk isn't Division 296 itself. It's making a reactive decision before modelling the alternatives properly.  

Model the alternatives before you act. Book a Division 296 Impact Assessment with Findex Wealth Solution Partners. 

Priority 4: Review your estate planning arrangements 

This is the part that surprises most people, and it's the one with the longest lead time to fix.  

Super doesn't follow your will. It is dealt with by the fund trustees and follows your (valid) death benefit nomination. If your estate plan hasn't been reviewed alongside Division 296, the outcomes for your beneficiaries could be very different from what you intended. 

The couples' trap 

An auto-reversionary pension transfers the deceased member's pension account to the surviving spouse on the date of death. Under the transfer balance cap rules, this worked well. Under Division 296, the math changes.  

If a couple each holds $2 million in a shared SMSF and one partner passes away, the survivor's TSB can jump to $4 million overnight. From that point, 25% of the fund's earnings sit in Division 296 territory. The surviving spouse faces a tax liability they were never warned about and could have avoided with current planning. 

The estate tax debt problem 

Division 296 is a personal tax. That means it can become an estate liability even when the superannuation itself has already passed to a different beneficiary. An adult child who receives the super benefit isn't responsible for the Division 296 assessment. The estate is. If the estate doesn't have sufficient liquidity to meet that liability, the consequences can be significant.  

Death benefit nominations need to be reviewed alongside your trust deed, your estate plan, and your Division 296 position simultaneously.  

Book a Division 296 Impact Assessment to walk all four in one conversation. 

Priority 5: Plan how future Division 296 liabilities will be funded 

Division 296 assessments are personal. The ATO issues them to the individual, not the super fund.  

When the assessment arrives, you have two options: pay it from personal funds or elect to release the amount from your superannuation. For most members, releasing from super is the simpler path but it's not always available. 

The liquidity problem for illiquid funds 

If your SMSF is dominated by illiquid assets - commercial property, units in unlisted trusts, or shares in private companies, the fund may not have enough cash to release the tax without triggering a forced sale.  

That sale comes with its own CGT consequences, brokerage costs, and potential timing issues.  

This is why liquidity planning needs to happen now: 

• Review your fund's current cash and liquid asset position 

• Model what a Division 296 assessment might look like based on projected earnings 

• Identify whether the fund can meet that liability without disrupting the investment strategy 

• Update your fund's investment strategy to reflect the new Division 296 liquidity dimension 

The defined benefit complication 

Members with defined benefit interests face an additional layer of complexity. If you haven't met a condition of release, you may not be able to release the Division 296 tax from super at all.  

In that case, the full assessment must be paid personally, regardless of whether the fund has the cash to support it.  

Liquidity modelling needs to happen now, not after the first assessment arrives. Book a Division 296 Impact Assessment with Findex. 

Why the sequence matters 

These five Division 296 tax strategies don't stand alone. They form a chain, and the sequence isn't arbitrary.  

Scope feeds the election, if you're not in scope, the CGT cost base election is irrelevant, confirm scope first.  

The election feeds the portfolio decisions, the cost base reset changes the economics of holding versus selling assets, and you can't make a sound restructuring decision without knowing whether you've made the election.  

The restructure decision feeds estate planning, the asset mix inside your fund affects liquidity on death, the reversionary pension question, and the size of any Division 296 liability the estate might face.  

Estate planning feeds funding, how your death benefit nominations are structured determines who carries the Division 296 liability, and whether the fund has the liquidity to release it.  

Get the order wrong and downstream decisions either cost more or become impossible to fix in time. 

This is also why Division 296 advice can't sit in one discipline. Wealth, SMSF and tax all need to be in the same conversation. Advice that addresses only one of these five decisions without the others is incomplete by design.

Frequently asked questions

How can I reduce or manage Division 296 tax? 

Work through the five Division 296 tax strategies in order: confirm whether you're in scope, review the CGT cost base election if you have an SMSF, check whether your structure is still right, review your estate plan and death benefit nominations, and plan how you'll fund the liability. Each depends on your circumstances, so model it with an advisor before acting. 

Does Division 296 tax unrealised gains? 

No. It applies to realised earnings from 1 July 2026, not paper gains on assets you haven't sold. 

What is the Division 296 tax rate? 

Division 296 adds an extra 15% on the proportion of earnings attributable to the part of your balance above $3 million and an additional 10% on earnings attributable to the part of your balance above $10 million. It is applied personally, not at fund level. 

When does Division 296 start? 

It applies from 1 July 2026, and the first assessment is based on your total super balance at 30 June 2027. 

Does Division 296 apply to SMSFs only?  

No, it applies to all superannuation accounts. SMSFs have additional planning considerations, including the CGT cost base election. 

Should I withdraw from super to avoid Division 296?  

In most cases, no. Withdrawal triggers tax and transaction costs and is constrained by contribution caps but each situation needs to be modelled on a case by case basis. 

Can Division 296 be paid from my SMSF?  

Yes, but only if the fund has sufficient liquidity. Otherwise, assets may need to be sold. 

Start your planning conversation 

We're offering a 60-minute Division 296 Impact Assessment, delivered alongside SMSF and tax specialists. For a fixed fee, you'll leave with a written summary of which Division 296 tax strategies apply to you and what to do next. 

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