SMSF specialist provides early tips on prepping for Division 296

Accounting firms have welcomed amendments to the government’s Division 296 superannuation tax, which addressed key concerns raised by industry bodies but could bring fresh complexity to accounting and SMSF professionals.

The Division 296 tax was first proposed in 2023 in a measure to curb generous superannuation tax treatment and boost intergenerational equity in the tax system. It was set to impose an additional tax on the earnings of superannuation balances above $3 million, applicable to both realised and unrealised gains.

It was altered in December 2025 to accommodate industry feedback, which argued that the tax should only apply to realised gains and the threshold should be indexed to inflation.

The updated bill would impose an additional 15 per cent tax on realised earnings of an individual’s super balance above $3 million, and a further 10 per cent tax on the realised earnings on the portion of an individual’s super balance above $10 million.

This would see earnings on portions of superannuation balances above $3 million affected by a headline tax rate of 30 per cent, and those above $10 million affected by a headline rate of 40 per cent.

Speaking to Accounting Times, BDO superannuation partner Shirley Schaefer said Treasury’s amendments to the tax legislation, including indexing thresholds and limiting the tax to apply only to realised gains, had been positive moves.

Schaefer also welcomed new cost base reset provisions, which ensured that prior capital gains would not be captured retrospectively by the tax. Under this rule, SMSFs would have the option to reset the cost base of their assets to their market value as at 30 June 2026, ensuring that previously built-up capital gains would not be taxed.

“You don’t have to have more than $3 million in super to take advantage of the cost base reset,” she noted.

According to Schaefer, most funds with the prospect of reaching a balance of $3 million would benefit from the cost base reset. However, the cost base reset would apply to all assets, even those in a loss position.

For assets that had made a capital loss before 30 June, a cost base reset would increase the Division 296 tax liability as it would erode the magnitude of this loss. As such, Schaefer noted that case-by-case analysis would be imperative.

She added that the shift from taxing unrealised gains to realised gains would create additional complexity for SMSF accountants.

“The ATO will work out who's got balances above $3 million. They will then send notices to the superannuation funds to say, tell us what the earnings are that are attributable to that member because of this. And so when that notice arrives, the accountants are going to have to get that information,” she said.

“Because it's an adjusted earnings calculation, particularly for capital gains, it's going to be a bit of a manual calculation.”

The cost base reset provisions would similarly introduce complexity for accounting and SMSF professionals, she added.

“You get to reset the cost base of the assets, but you don't do that inside the superannuation fund because the fund still has to pay tax in the normal way,” Schaefer explained.

“It’s like a notional resetting of the cost base to the market value at 30 June. So the fund's accountants will have to keep that information external to the superannuation fund and then calculate what the adjusted taxable gains might be.”

She said she hoped software providers would develop processes and systems to enable accountants to record and keep track of the information in a more automated way, reducing compliance headaches and the risk of losing relevant information.

According to Schaefer, it was likely too early to take concrete action in response to the legislation, considering it remained in draft form. However, it wasn’t too early for individuals and their accountants to start planning for the changes.

Practical steps included assessing the likely impact of the Division 296 tax, investigating possible opportunities for asset restructuring, and deciding whether or not a cost base reset would be appropriate on a case-by-case basis.

The full list of changes in the updated Division 296 bill, according to Treasury, included:

• Adding a second threshold with a headline rate of 40 per cent – this rate will apply to earnings on the part of an individual’s total super balance above $10 million
• Indexing the thresholds consistent with the approach for the transfer balance cap
• Moving to a realised earnings approach that aligns with existing income tax concepts
• Changes to exclude capital gains accrued before the start of the policy
• Applying commensurate treatment to defined benefits
• Delaying the start date to 1 July 2026.

Treasury said it would accept feedback on the updated bill until 16 January.