The Federal Government released draft legislation for the Division 296 tax just before Christmas 2025.

The draft legislation includes the below key points (all similar to the initial announcement):

  • Introduction of two thresholds

– Earnings above $3 million taxed at 30%

– Earnings above $10 million taxed at 40%

  • Indexation of thresholds – indexed to inflation
  • Removal of tax on unrealised capital gains
  • Changes delayed by a year – start date 1 July 2026, with the first year of assessment based on 30 June 2027 balances.

How the tax will apply and be calculated

The tax is calculated like the previous draft

a percentage x earnings x tax rate

However, the earnings amount will no longer include unreleased gains. Now normal tax principles will apply to div 296 calculations. The fund will calculate the earnings by using the realised capital gains, allowing for discount and offset of capital losses,

Any capital gains that have accrued prior to 30 June 2026 will be excluded from the calculation as promised by Chalmers in the announcement.

Trustees must take specific actions to obtain capital gains relief as of 30 June 2026; this process does not occur automatically. Any fund that wants to utilise the relief will need to opt in, on or before the due date of their 2026/27 tax return.

We strongly suggest any SMSF with accrued gains opt in, even if none of the members have a balance above $3M on 30 June 2026. This will allow the fund to uplift the cost base and reduce liability in future years if the members balance rises above $3M.

How to calculate the percentage

The way the percentage is calculated above the threshold has changed. The draft legislation bases the percentage on the higher of the members balance at the start and end of the year. The previous legislation only looked at the end of year balance.

Presumably this was implemented to stop members from withdrawing large sums of super to get below the threshold in years they realised large capital gains.

There is a special transition rule in 2026/27 – the percentage in this year is only based on the 30 June 2027 member balance. This will allow any members wanting to avoid the tax up to 30 June 2027 to withdraw their balance.

How to split Div 296 earnings between members

The fund will be required to split the earnings between members, as Div 296 tax is a tax on the individual not the SMSF. Treasury has indicated in additional guidance that a method will be set out in the regulations and will require the fund to rely on a special actuarial certificate. This may require some SMSF’s to obtain an actuarial certificate to determine the split even though the fund may not have any members in pension phase.

Our view

The revised Div 296 legislation continues to represent a more balance approach:

  • by removing the controversial taxation of unrealised gains,
  • introducing indexation to protect against bracket creep and
  • providing additional time for implementation

What you need to do

The rules aren’t law yet. The consultation period is short and ends on 16 January. The Government will want to move quickly to get this passed and implemented before 1 July 2026.

Once the final legislation is passed through Parliament, we’ll make sure you have a clear update and practical guidance on what it means for you.

This article was authored by Natalie Scott, Superannuation Manager.