Key Highlights

  • Division 296 applies from 1 July 2026, with 2026–27 the first income year.
  • Thresholds are $3 million (large) and $10 million (very large) for 2026–27.
  • Valuation evidence and fair allocation of returns are central for SMSFs.

Division 296, the additional tax on large super balances, is no longer a proposal. The ATO's guidance now describes it as law that started on 1 July 2026, and its recent updates for SMSFs and auditors make clear that valuation evidence and reporting are central to how it will work. For trustees with members near or above the thresholds, the practical consequences are arriving now, even though the first assessment is some way off.

This article reports recent official updates. It is not personal advice, and members should speak to a registered tax professional about their own position.

What the ATO says the tax is

According to the ATO's page on Division 296 for SMSFs, last updated on 29 June 2026, the tax applies from 1 July 2026, with 2026–27 as the first income year. The large super balance threshold is $3 million and the very large super balance threshold is $10 million for 2026–27, and both may rise with indexation in later years. A 15 per cent rate applies to taxable super earnings attributable to the balance above $3 million, and an extra 10 per cent applies to the earnings component above $10 million.

For 2026–27, the ATO says the total super balance at year end must exceed the threshold. In later years either the balance just before the year starts or the balance at year end can trigger the tax. The ATO also says limited recourse borrowing amounts are disregarded when calculating the total super balance for this purpose. The tax is assessed to the individual, but it can generally be paid from their super fund or funds.

How SMSFs are affected

An SMSF calculates 'Division 296 fund earnings', an adjusted version of taxable income, and attributes a share to each in-scope member as relevant super earnings. The ATO says an actuary is generally needed, except where fund earnings are nil. From 2026–27, trustees report relevant super earnings on the SMSF annual return, and if they do not the ATO will notify the fund and an amended return will be required.

The cost base election

The ATO describes an optional election that recognises value built up before the tax began. If made, assets are reset to their 30 June 2026 market value for the calculation, and the first cost base element becomes that value with other elements treated as nil for Division 296 purposes. The election applies to all CGT assets held at 30 June 2026, generally only directly held assets, is irrevocable, is made in an approved form that the ATO says has not yet been released, and is not lodged with the ATO. It must be made by the due date of the 2026–27 annual return, and records must be kept for five years after no further CGT events can occur for the assets. The ATO says it is drafting a law companion ruling on these calculations.

A change to the total super balance

A separate ATO update, published on 2 July 2026, says new legislation changed how an individual's total super balance is calculated, effective 30 June 2026. The balance now comprises the values of Australian super interests (including certain retirement-phase death benefit income streams and notional interests from a family law split), rollover benefits not already counted and outstanding limited recourse borrowing amounts, less personal injury or structured settlement contributions. Interests in foreign funds are excluded.

Why valuations are the pressure point

The ATO's update on Division 296 and SMSF audits, last updated on 31 August 2026, says the regime does not change auditors' obligations, but accurate reporting supports the calculations. Auditors should check there is sufficient and appropriate evidence for the market value of each asset, and that trustees allocate investment returns to members on a fair and reasonable basis. Under regulation 8.02B trustees must value assets at market value; under regulation 5.03 they must allocate returns fairly and reasonably.

SMS Magazine reported on 1 September 2026 that the SMSF Association welcomed the update but said several technical and practical issues still need clarification. That is attributed commentary, not ATO policy.

Practical considerations

Trustees of larger funds may wish to review how each asset is valued and whether the evidence would satisfy an auditor, especially for unlisted or hard-to-value assets. They should check that the way returns are allocated across members is documented and defensible. They should consider whether an actuary will be needed. And they should keep an eye on the ATO's forthcoming form and ruling for the cost base election.

Hypothetical example

A hypothetical member with a total super balance above $3 million at 30 June 2027 would, on the ATO's description, have part of that year's earnings attributed to the excess amount and taxed at the additional rate. This example is only an outline and is not a calculation.

Takeaway

Division 296 is law, with the first income year under way. For SMSFs the immediate priorities are sound valuations, fair allocation of returns, an informed decision about the cost base election and timely reporting. Trustees should take professional advice before making decisions based on the new tax.