What the new super tax changes mean for you
New superannuation tax legislation is set to start in July. BDO partner Shirley Schaefer explains what you need to know.
On 19 December 2025, the government released the draft Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2025.
The legislation is proposed to commence from 1 July 2026, with the first measurement and assessment of Division 296 tax occurring at 30 June 2027.
What are the Division 296 tax thresholds?
As previously announced, the application of the Division 296 tax uses two measurement thresholds:
- For individuals with a total superannuation balance (TSB) greater than $3 million, Division 296 tax will be assessed at 15 per cent of attributable Division 296 earnings (based on the proportion of earnings that are attributable to balances in excess of $3 million)
- For individuals with a TSB greater than $10 million, Division 296 tax will be assessed at an additional 10 per cent of attributable Division 296 earnings (based on the proportion of earnings that are attributable to balances in excess of $10 million).
It is also confirmed that these TSB thresholds will be indexed in line with increases in the Consumer Price Index (CPI):
- The $3 million TSB threshold increases only in $150,000 increments, meaning indexation must exceed $3,150,000 before the threshold is increased to $3,150,000
- The $10 million TSB threshold increases only in $500,000 increments, meaning indexation must exceed $10,500,000 before the threshold is increased to $10,500,000.
To determine whether Division 296 will be assessed, an individual’s TSB will be calculated at both the start and end of the year, with the higher TSB figure being used for the assessment. This ensures that, where significant benefits are withdrawn from superannuation during a financial year and the TSB drops below the relevant thresholds, the individual still remains subject to Division 296 tax.
A specific exemption applies for the first year of operation, where the TSB is assessed at 30 June 2027 only. This will enable individuals to withdraw monies from superannuation up to this date and reduce their TSB to below $3 million if they do not want to incur the Division 296 tax.
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The Australian Taxation Office (ATO) will determine which individuals are impacted by a Division 296 tax assessment based on the TSB reported to the ATO by all of the individual’s superannuation funds.
How are Division 296 earnings calculated?
When the ATO determines that an individual taxpayer is liable for Division 296 tax, they will request the individual’s superannuation funds to report the amount of Division 296 earnings attributable to the individual in relation to each superannuation balance.
For self-managed superannuation funds (SMSF), Division 296 earnings are calculated by adjusting the fund’s taxable income as follows:
- Assessable contributions are deducted (as these do not represent earnings of the SMSF)
- Non-arm’s length income (NALI) is deducted from taxable income (as this does not represent concessionally taxed income)
- Exempt current pension income (ECPI) is added back to taxable income
- Ordinary taxable capital gains are deducted from taxable income
- Adjusted taxable capital gains are added to taxable income
- Pooled superannuation trust (PST) earnings are added to taxable income (for those SMSFs that hold investments in PSTs).
Cost base reset: What’s new?
Adjusted taxable capital gains are calculated by resetting the cost base of your assets and investments to their market value as at 30 June 2026. This means any capital gains that built up before this date are not taxed under the new rules.
The actual cost of the capital assets and investments does not change within the SMSF, as the normal income tax and capital gains tax principles apply to the taxation of the SMSF income each year. Therefore, you must record and retain any reset cost base outside of the ordinary SMSF accounting records.
To be eligible to use adjusted taxable capital gains calculation, an SMSF will need to opt in via the lodgement of an approved form with the ATO. This form must be lodged by the due date of the SMSF’s 2026 annual income tax return. If the SMSF chooses to opt in and reset the cost base of all capital assets and investments to the market value of those assets at 30 June 2026, all assets need to be reset. The SMSF cannot choose individual assets to reset, this means that if an asset is in a loss position, the cost base will be reset to a lower value.
The SMSF can choose not to opt in. If they do not do this, the taxable capital gains included in Division 296 earnings will be the same as those reported in the SMSF’s taxable income calculation.
Allocation of earnings in SMSFs
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Where there is more than one member in a SMSF, the Division 296 earnings must be allocated between the members. The draft legislation does not specify how this should be done and the further detail is expected to be included in the regulations that will accompany the legislation. The SMSF may need to obtain an actuarial certificate to calculate the split of Division 296 earnings.
Even if the SMSF uses a segregated methodology and allocates specific assets to specific members, it appears that Division 296 earnings are to be calculated on a pooled methodology.
How is the tax calculated?
Once Division 296 earnings are calculated, they are apportioned across the individual’s total superannuation balance.
- Earnings relating to the balance above $3 million are taxed at 15 per cent.
- Earnings relating to the balance above $10 million are taxed at an additional 10 per cent.
After assessment, the individual can pay the tax personally or elect to have the amount released from their superannuation fund.
Practical steps and considerations
Until the final version of the legislation passes, it may not be appropriate for individuals to take specific action, but the following checklist serves as a useful tool for individuals speaking to their advisers:
- Consider the likely impact of Division 296 tax – what is the effective tax rate?
- Are income tax outcomes better if assets are held outside of super, either personally or via other structures such as trusts or companies?
- Is there an opportunity for asset restructuring or estate planning changes?
- Assets can be removed from superannuation to reduce an individual’s TSB to less than $3 million up to 30 June 2027 (and not be caught by the new legislation).
- 2026 Income tax returns for SMSFs must be lodged on time, along with the approved opt-in form for the SMSF to be eligible to use the cost base reset mechanism.
- If SMSFs opt-in for a cost base reset, all assets will have their cost base reset. There is not an ability to select assets individually.
- Even SMSFs where members do not currently have TSBs above $3 million are eligible to reset the cost base of their assets.
How BDO can help
If you have questions about how Division 296 tax may affect your circumstances, or would like tailored advice on your superannuation strategy, our specialists can help you understand what these changes mean. To discuss your options, contact your local BDO adviser.
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