Div 296 kicked in last week, which means the new rules concerning large super balances are now in effect.
In an update, the tax office explained that individuals with a total balance above the large super balance threshold (LSBT), which is $3 million for the 2026-27 financial year, will be subject to an additional 15% tax on earnings over the threshold. Those with balances above the very large super balance threshold (VLSBT), which is currently $10 million, will be subject to a further 10% over that threshold.
While the ATO said it’s currently in the process of “drafting law companion rulings to help funds calculate their in-scope members’ relevant super earnings,” the updated listed three things SMSFs should consider right now:
- If a member’s interest in the SMSF exceeds the LSBT or VLSBT, this will need to be reported in the SMSF annual return from 2026–27 onwards
- Division 296 notices of assessment for the 2026–27 financial year will be issued in the latter of next year, and members may elect to release money from their fund to pay their Div 296 tax liability
- If an SMSF wishes to opt in for the CGT adjustment for the Div 296 tax, this will need to be done before the due date on the 2026-27 annual return
On the latter point, the ATO noted that electing to opt in for the CGT adjustment will “apply to all your CGT assets held by the fund on 30 June 2026 and cannot be revoked.”
“Your members do not need to be over the LSBT to opt in for this adjustment,” the tax office added.
Last month, DBA Lawyers special counsel Bryce Figot described the CGT adjustment as an “important one-time opportunity” that could “significantly reduce the fund members’ resulting Division 296 tax liabilities.”
“Effectively, the adjustment will enable trustees to disregard pre‑1 July 2026 unrealised capital gains when calculating Division 296 fund earnings. If the trustee has made the choice, typically the cost base will be the market value of the asset on 30 June 2026,” Figot said.
He noted, however, that there was an important caveat: trustees who make the choice will need to keep a record of it for five years. And based on Section 296‑55(3) of the Income Tax (Transitional Provisions) Act 1997, that’s five years “after it becomes certain that no CGT event (or no further CGT event) can happen such that the record could reasonably be expected to be relevant to working out the fund’s Division 296 fund earnings for an income year.”
“In short, trustees might need to keep the record of the choice for many more than five years,” Figot said.
