Australia’s enacted Division 296 superannuation tax uses a realised-earnings approach rather than taxing unrealised capital gains under the earlier proposed balance-movement model.

The legislation received Royal Assent in March 2026, and the tax applies from the 2026–27 income year. For affected members, the distinction matters: an increase in an investment’s market value does not, by itself, become a realised capital gain. However, valuations remain relevant to determining whether a member’s super balance exceeds the applicable thresholds.

What changed in the final design?

The final framework replaced the proposed taxation of unrealised gains with an earnings calculation aligned more closely with existing income tax concepts.

It also introduced a second balance threshold and indexation of both thresholds. For 2026–27, the large super balance threshold is $3 million and the very large super balance threshold is $10 million.

Division 296 imposes an additional 15% tax on taxable super earnings attributable to the relevant proportion above the lower threshold. A further 10% applies to the very large balance earnings component.

These are additional taxes on calculated earnings, rather than taxes charged directly on the entire super balance. Describing the measure simply as a flat 30% or 40% tax can obscure the separate fund-level and individual-level calculations.

How rising asset values are treated

Under the realised-earnings approach, a property revaluation alone does not create a realised capital gain. A subsequent disposal or another relevant capital gains tax event can bring a gain into the earnings calculation.

Consider a hypothetical SMSF holding a commercial building worth $1.6 million at the beginning of the year and $1.75 million at year-end. If the fund continues to hold the building, the $150,000 valuation increase is an unrealised gain.

Rental income is a separate matter. The absence of a sale does not mean the property produces no earnings, because income and relevant deductions still contribute to the fund’s tax-based calculation.

A later sale requires a separate calculation using the applicable cost base, adjustments and capital gains rules. The sale price alone does not establish the member’s Division 296 liability.

Why valuations still matter

Excluding unrealised gains from earnings does not remove the balance threshold test.

For the first income year, 2026–27, the relevant total super balance must exceed $3 million at the end of that year for Division 296 to apply. Growth in the value of assets can therefore affect whether a member falls within the framework, even when that growth has not been realised through a sale.

The balance test and the earnings calculation serve different purposes. One determines exposure to the tax; the other establishes the earnings to which the additional tax applies.

The SMSF cost-base adjustment election

SMSFs can elect to adjust the cost base or reduced cost base of eligible CGT assets to their market value at the end of 30 June 2026, specifically for calculating Division 296 fund earnings.

The election applies across the eligible CGT assets held at that date. It generally concerns assets held directly, with specified treatment for custodial and tax look-through arrangements.

It does not reset the assets’ cost bases for ordinary fund income tax purposes. The adjustment creates a separate basis for the Division 296 calculation.

Because the election applies across eligible assets, it also affects assets whose market value was below their existing cost base. It cannot be applied selectively only to assets with accrued gains.

The election cannot be revoked and must be made by the due date of the fund’s 2026–27 annual return. The valuation date and election deadline are different: 30 June 2026 establishes the asset values used, while the annual return due date governs the election.

How other super funds are treated

Small APRA funds can also access the cost-base adjustment election. It is therefore inaccurate to describe the election as available exclusively to SMSFs.

Other APRA-regulated funds have transitional adjustments to net capital gains used in calculating Division 296 earnings. The prescribed factors are 0.2 for 2026–27, 0.4 for 2027–28, 0.6 for 2028–29 and 0.8 for 2029–30, with no further adjustment after that period.