With Division 296 tax in force since 1 July 2026, some SMSF members with large balances are taking a fresh look at how much they hold in super, and in whose name. The first test date, 30 June 2027, is now less than a year away. Industry commentary suggests trustees are weighing withdrawals, spouse balances, timing and estate planning, though experts also caution that tax should not be the only consideration.

The rules prompting the rethink

Division 296 applies an additional 15 per cent tax to the share of a member's realised super Earnings attributable to their total super balance, or TSB, above $3 million. A further 10 per cent applies to the share above $10 million.

The tax is assessed to the individual and, according to the ATO, can generally be paid from super. Because it is calculated per person rather than per fund, the way balances are spread across members, and across time, can influence the outcome.

For 2026–27 only, the ATO says the tax applies if a member's TSB at the end of the year exceeds the thresholds. From later years, it applies if the balance either just before the start of the year or at the end of the year is above them.

Weighing withdrawals from super

One consideration raised in commentary is whether some Wealth could sit outside super. Money can only leave super once a member meets a condition of release. According to the ATO, these include turning 65, retiring after reaching preservation age, or ceasing employment at or after age 60.

Withdrawals are not a simple swap. Earnings on money held outside super are generally taxed under personal or other structures, which carry their own rates, costs and risks. Once withdrawn, money may also be difficult to return to super because of contribution caps.

RSM Australia partner Kate Timms told SMS Magazine that tax-driven responses can backfire. She described an adviser who moved balances over $3 million into discretionary trusts, saying that response "has created a bigger problem" after later budget changes affecting trusts.

Timms also cautioned that tax considerations can lead to decisions that may not suit people "20 years down the track".

Looking at spouse balances

Because Division 296 applies per member, couples with uneven balances have attracted attention. For example, a hypothetical couple with $5 million in combined super could face quite different outcomes depending on whether one member holds most of it or the balances are closer to equal.

Smarter SMSF technical and education manager Tim Miller, speaking at a SuperGuardian webinar reported by SMS Magazine, outlined one approach for members at preservation age who have not retired. It involved a transition to retirement income stream for the higher-balance member.

In his illustration, the member draws up to the 10 per cent annual maximum from the income stream and contributes it to the lower-balance spouse as non-concessional contributions, using the bring-forward rules. Over two income years, this could move a meaningful amount between their accounts.

In a separate SMS Magazine report, Miller described Withdrawal and recontribution as a way some couples may bring both members under $3 million. Each approach has eligibility conditions, contribution caps and potential downsides, and may not suit every couple.

Miller has also noted that Rebalancing is not always straightforward. In blended families, one spouse may intentionally hold a higher balance to provide for children from an earlier relationship.

In those situations, moving money to the other spouse could alter who ultimately receives it. That may make the ultimate distribution intentions of each member just as relevant as the tax outcome.

For couples where both members share the same children, the picture may be simpler, but each person's family and retirement plans can still change the analysis.

Timing and the first test date

The 2026–27 rule, using the TSB at 30 June 2027, means the balance at that single date matters for the first year. Investment returns, contributions and withdrawals during the year could all affect where that balance lands. From 2027–28, both the opening and closing balances come into play.

Industry commentary has highlighted an estate-related timing issue. If one member of a couple dies late in a financial year and the survivor receives a reversionary pension, the survivor's TSB at 30 June could exceed $3 million, even though it was below that level for most of the year.

In her illustration, a survivor holding $4 million at year end would have a quarter of that year's earnings exposed to the tax, despite the short period above the threshold.

Estate planning comes into focus

Miller told SMS Magazine that Division 296 has "brought estate planning to the front" of super conversations. Industry analysis has flagged that two members of a couple who each hold around $2 million may be likely to exceed the threshold once one inherits the other's balance.

Other estate planning questions, such as reversionary pensions, binding death benefit nominations and who receives benefits, may intersect with Division 296 in ways that depend heavily on individual circumstances.

Separately, SMSFs may make a one-off, irrevocable election to reset CGT asset cost bases to Market Value at 30 June 2026. The ATO says it must be made by the due date of the fund's 2026–27 annual return.

A general information reminder

This article is general information only and does not consider any reader's objectives, financial situation or needs. The strategies described are examples discussed in industry commentary, not recommendations.

Changes such as withdrawing benefits, rebalancing between spouses or restructuring estate plans can have tax, social security, asset protection and family consequences.

The bottom line

Division 296's per-member design, end-of-year test for 2026–27 and realised earnings base have prompted some SMSF trustees to review their balances. Withdrawals, spouse rebalancing, timing and estate planning are all being discussed in industry commentary. Each involves conditions, caps and trade-offs, and commentators have warned that decisions driven solely by tax may create other problems. Outcomes will depend on individual circumstances.