Introduction
Division 296 is now law.
The new superannuation tax passed both Houses of Parliament and applies from the 2026-27 income year, which started on 1 July 2026. It is designed to reduce the concessional tax treatment available to very large superannuation balances.
For high-income professionals, medical specialists, legal professionals, business owners and property investors, this is a significant planning change. Your super balance may have grown through years of compulsory contributions, business success, property exposure and investment returns. The new rules do not make those strategies irrelevant, but they do mean your super, property and personal borrowing decisions need to be considered together.
And yes, it is a complicated change. The sort of change that makes you want to put the paperwork in a drawer and go for a walk.
At Stellar Finance Group, we are all about making the complex simple. Here is what Division 296 means, how SMSF property may be affected and what you can review before 1 July 2027.
What is Division 296?
Division 296 introduces an additional tax on superannuation earnings attributable to the part of your Total Superannuation Balance (TSB) above certain thresholds.
Your TSB is broadly the total value of your superannuation interests across your funds, including relevant accumulation and pension interests. It is not simply the balance of one SMSF or one industry fund.
The new tax works alongside the existing 15% tax rate generally applying to superannuation earnings.
The ATO's Division 296 tax on large super balances{: target="_blank" rel="noopener noreferrer" } page sets out the thresholds and how the regime operates.
| Portion of TSB | Additional Division 296 tax | Headline combined tax rate |
|---|---|---|
| Between $3 million and $10 million | 15% | 30% |
| Above $10 million | 25% | 40% |
The $3 million and $10 million thresholds are indexed annually. That means they are not necessarily fixed forever, although the first-year thresholds are $3 million and $10 million.
You can read the Australian Taxation Office’s explanation of how Division 296 tax is calculated for the technical formula.
Is Division 296 paid by your super fund?
No. The tax is assessed at the individual member level.
That means the liability is personal rather than a tax bill issued directly to the fund. You may need to arrange payment personally or consider the available mechanisms for releasing money from super, depending on your circumstances and the applicable rules.
Your SMSF still has important reporting responsibilities. From the 2026-27 annual return onwards, SMSF trustees must report affected members and provide the information required for the calculation.
This distinction matters. You may have a valuable property sitting inside an SMSF, but the tax liability is not simply something the fund absorbs in the background like an electricity bill.
How does the first year work?
The 2026-27 income year has a transitional rule.
For that year, Division 296 liability is determined by your TSB at 30 June 2027. The ATO does not use the usual start-and-end comparison for this first year.
From later income years, Division 296 can apply where your TSB exceeds the relevant threshold at either:
- The start of the income year; or
- The end of the income year.
This makes 30 June 2027 an important date for affected members. It is worth reviewing your expected balance, contributions, pension arrangements and investment outlook well before then – not when the financial year is already waving goodbye.
Does moving into pension phase avoid the tax?
No.
Moving into pension phase does not automatically exempt you from Division 296. The threshold test uses your TSB, and pension interests are included in that balance.
This is particularly important for professionals who have accumulated substantial super and are approaching retirement. A pension strategy may still be appropriate for many reasons, but it should not be treated as a simple escape hatch from the new tax.
Your financial adviser or accountant can review the pension structure, transfer balance position, cash-flow needs and likely tax outcomes. The right answer will depend on the full picture, not just whether an account is labelled “pension”.
What does Division 296 mean for SMSF property investors?
Property is where the rules become particularly practical.
Many SMSF property investors have experienced significant growth in the value of commercial or other permitted property assets. That growth may have helped build long-term retirement wealth, but it also creates valuation and tax-planning questions.
The ATO's guidance on Division 296 for SMSFs{: target="_blank" rel="noopener noreferrer" } sets out the trustee reporting obligations and what funds need to provide.
Are unrealised property gains taxed immediately?
Generally, unrealised growth in an SMSF property is not taxed as though the property had been sold. The property’s market value may rise, but there is no disposal simply because an online estimate has increased.
However, rental income and realised capital gains form part of the fund’s investment earnings. When a property is sold, the realised gain and other relevant amounts may affect the Division 296 calculation for an affected member.
This means the following can matter:
- The property’s market value;
- Rental income and expenses;
- The original tax cost base;
- Capital improvements and transaction costs;
- The date and value at which an asset is treated as acquired for Division 296 purposes; and
- Whether a transitional cost-base election is available and appropriate.
The valuation is not just a number pulled from thin air. It needs to be reasonable, documented and capable of being supported.
What is the transitional cost-base election?
A cost-base election may be available for certain assets held before 1 July 2026, including property held by an SMSF.
Broadly, the election can allow the Division 296 cost base of relevant assets to be reset by reference to their market value at 30 June 2026. This is intended to distinguish growth that occurred before the new regime began from growth occurring afterwards.
For an SMSF property investor, that makes the 30 June 2026 valuation important. A defensible valuation may help establish the starting point for future Division 296 calculations.
The election is technical and may have fund-level consequences, including how other assets are treated. It may also be irrevocable or subject to specific election requirements. Do not make the decision based on a quick back-of-the-envelope calculation while waiting for your coffee.
Your accountant and SMSF adviser should model the outcome before any election is made. The ordinary capital gains tax treatment of the asset also needs to be considered separately.
What should high-income professionals review?
For medical specialists, lawyers, barristers and business owners, the issue is rarely limited to super.
You may have:
- A growing super balance;
- An SMSF holding commercial property;
- Investment property held personally or through another structure;
- A private practice, partnership or company;
- Multiple residential or commercial loans;
- Irregular bonuses, distributions or business income; and
- A plan to acquire, refinance or develop property.
That is why a coordinated strategy matters. Your Medical Sector Finance options, personal home loans, commercial loans and business loans should not be reviewed in isolation from your superannuation and tax planning.
For example, increasing contributions might help build retirement assets, but it could also move your TSB closer to the relevant threshold. Holding a growth asset inside super may be attractive for some investors, while holding future growth outside super may provide more flexibility for others.
The Association of Superannuation Funds of Australia has published an overview of the Division 296 super tax{: target="_blank" rel="noopener noreferrer" } that is useful background reading.
There is no universal “best” structure. There is only the structure that fits your objectives, borrowing capacity, tax position, risk tolerance and time horizon.
Could property finance still form part of the strategy?
Yes, but the purpose and ownership structure matter.
If you are considering commercial property, a practice premises, construction finance or business expansion, the funding strategy needs to be assessed alongside your wider balance sheet. Stellar’s SMSF loans team can help examine the lending side of an SMSF property strategy, while our broader finance solutions cover residential, commercial and business requirements.
If you are reviewing existing debt, refinancing may improve cash flow or release equity for an appropriate purpose. Our refinance guidance can help you compare the structure, pricing and flexibility of your current loans.
Before making changes, it is sensible to understand your numbers. You can use our borrowing power calculator, loan comparison calculator and income tax calculator as a starting point – but calculators are not a substitute for personalised tax, financial or legal advice.
Your Division 296 action checklist
Before 1 July 2027, consider taking the following steps.
1. Confirm your current TSB
Review all superannuation accounts, including accumulation and pension interests. If your balance is close to $3 million, small changes in contributions, investment returns or valuations may become important.
2. Forecast your 30 June 2027 position
The first-year test is based on your TSB at 30 June 2027. Ask your adviser to model different outcomes rather than relying only on today’s balance.
3. Review contributions timing
Consider concessional and non-concessional contributions, contribution caps and whether additional contributions could push your balance into a higher Division 296 range.
4. Review your asset mix
Compare the likely tax and flexibility outcomes of holding growth assets inside or outside super. This should include property, shares, managed investments and business interests where relevant. The Reserve Bank of Australia's cash rate and interest rate data{: target="_blank" rel="noopener noreferrer" } is also worth keeping in mind when comparing the returns on debt-funded assets against superannuation outcomes.
5. Check pension structures
Moving into pension phase does not remove your TSB from the calculation. Review the structure with your financial adviser before making changes.
6. Obtain appropriate property valuations
For SMSF property, make sure valuations and supporting evidence are properly documented. This is especially important where a transitional cost-base election may be relevant.
7. Model the election before making it
Ask your accountant or SMSF specialist to compare the outcomes with and without the cost-base election. Consider both Division 296 and ordinary capital gains tax.
8. Coordinate your professional team
Your broker, accountant, financial adviser and solicitor may each see a different part of the picture. Bring them together where a property purchase, refinance, pension change or SMSF strategy is involved.
The bottom line
Division 296 does not mean property investment or superannuation planning has stopped. It means the margin for uncoordinated decisions has become smaller.
For affected members, the key issues are your TSB, the 30 June 2027 transitional test, the treatment of investment earnings, SMSF property valuations and the potential cost-base election.
Start with the facts. Then model the options.
If you would like to discuss the lending side of your broader property strategy, you can explore the Stellar Finance Group blog or book a conversation with our team. We can help you understand how your proposed purchase, refinance or commercial property plans fit together – while your accountant and financial adviser address the tax and superannuation decisions.
This article is general information only and does not constitute personal financial, tax, legal or SMSF advice. Division 296 is technical legislation. Obtain advice based on your individual circumstances before making investment, contribution, pension or cost-base election decisions.
