Peter Burgess, CEO of the SMSF Association, said the government did not have much choice but to release the draft legislation today if it is to be passed early in the new year.
“The government has to give people enough time to see what actions they need to take as a consequence and at best it will be four months to do that,” Burgess told SMSF Adviser.
He said overall what was announced in the draft legislation is consistent with what the Treasurer announced in October and has significantly reversed the severity of the tax, particularly for the SMSF sector.
“While the removal of the tax on unrealised gains is a welcome improvement, it has come at the expense of sector neutrality,” he said.
“The revised approach inevitably creates winners and losers across the superannuation system.”
Under the new framework, the allocation of a fund’s realised earnings to in-scope members, as well as the treatment of capital gains accrued prior to 1 July 2026, will depend on the type of superannuation fund chosen by the member.
“This means outcomes will vary between fund types. However, it also reflects the very different capabilities of funds to identify realised earnings attributable to individual members” Burgess said.
Importantly, the revised approach removes the need to tax unrealised capital gains — an issue that arose largely due to the system limitations of pooled APRA-regulated funds.
“SMSFs will no longer be penalised for system limitations that do not exist in their sector,” Burgess said.
“The association has consistently advocated for an approach that uses taxable income as its base and recognises the SMSF sector’s ability to accurately identify member-level taxable earnings. We are pleased these principles have been reflected in the revised model.”
He continued the SMSF sector is well placed to deliver more precise and transparent calculations for affected members, which may be critical for cash-flow management and for developing strategies to manage Div 296 liabilities.
He explained that the legislation now means that large APRA funds will have to use a “fair and reasonable” approach to calculate taxable earnings on members’ balances, which is not as transparent and precise as the calculation used in an SMSF.
“It recognises that SMSFs are better able to identify earnings at member level. The new draft has essentially sidestepped a lot of complexity for large funds with the ‘fair and reasonable’ approach as it is virtually impossible to calculate realised gains on individual members in a large fund,” he said.
Daniel Butler, director of DBA Lawyers, said under the draft legislation, the allocation of earnings in an SMSF will now have to be verified by an actuary so there is a transparent external process applied.
“SMSFs will have the small fund attribution rule – the proportionate rule to calculate exempt current pension income. Large funds will use the fair and reasonable approach,” he said.
Butler said another change to the draft legislation is the timing of when a member’s total super balance will be calculated.
“TSB is still important and is calculated broadly reflective of market value. However, now TSB will be taken before the end of the financial year and after, and if either is over the $3 million or $10 million threshold, then Div 296 will apply,” he said.
“On the old basis it looked at the end of the financial year, so if you exceed that threshold at either end now you will be in and it means advisers will have to get all their planning done now before 1 July 2026.”
Burgess said this will not apply in the first year of operation but will thereafter.
Another key feature of the revised legislation is the option SMSFs will have to make an irrevocable election to apply a cost-base adjustment for all CGT assets held by the fund as at 30 June 2026.
Burgess said this election does not trigger a CGT event or change the acquisition date of the assets for other tax purposes. It is only relevant for determining the fund’s “taxable superannuation earnings” for Div 296 purposes.
“Elections must be made by the due date of the fund’s 2026/27 income tax return and can be made even where the SMSF has no fund members with balances over $3 million as at 30 June 2026,” he said.
“Members with balances well below the $3 million threshold may not be top of mind, so this may present some practical challenges for advisers.”
With the legislation unlikely to pass before the end of February, members and their advisers will have less than four months before the intended start date to fully understand how Division 296 will operate and to put appropriate measures in place.
