They also advised that the consultation period for the revised Bill would close on January 16, 2026. With such timing, those of my era would have thought that someone had been watching an episode of Yes Prime Minister and would have also expected the expulsion of 76 foreign diplomats (For those interested: Series 1, Episode 8, “One of Us”).
The revised Bill included the changes announced by the Federal Treasurer on 13 October 2025. However, it also included changes that were not previously alluded to. Here’s a quick summary of the changes from the original Bill to the revised Bill:
A second ‘very large’ $10 million threshold
There will be two Division 296 tax tiers:
- 15 per cent applied to the portion of earnings that corresponds to the share of the individual’s TSB above $3 million (‘large threshold’); and
- an additional 10 per cent applied to the portion that corresponds to the share above $10 million (very large threshold’).
This will mean that the overall tax imposed on superannuation earnings will be as follows:
Indexation of thresholds
Each threshold will be indexed to the Consumer Price Index (CPI):
- $3 million threshold in increments of $150,000.
- $10 million threshold in increments of $500,000.
Integrity measure introduced – higher of TSB at start and end year
An integrity design of the revised Bill is that it uses the higher of the individual’s TSB just before the start of the income year and the TSB at the end of the income year. However, in the first year of operation only, 2026-27, the year-end TSB will be used to determine whether an individual will be an “in-scope” for Division 296.
Dying no longer avoids the tax
In the original Bill the superannuation earnings of an individual would not have been taxed in the event of their death before the end of the income year. However, given the new integrity measure to use the higher of an individual’s TSB at the start and end of the income year, where a member dies and their TSB at the start of the income year was more than $3 million, they will have a Division 296 tax liability for their relevant portion of superannuation earnings for the period from the start of the income year to their date of death. One exception being the 2026-27 transitional year. As noted above, in this year, it is only the end-of-year TSB that will be considered. To be consistent, an individual who dies before the last day of the 2026-27 income year will not be liable to pay Division 296 tax for that year.
‘Superannuation earnings’ based on income tax concepts – with adjustments
The Government has moved from a total superannuation balance change methodology to a fund‑level realised‑earnings approach. For SMSFs, superannuation earnings is calculated as follows:
Only post 30 June 2026 portion of realised capital gains to be included
The revised Bill contains CGT transitional adjustments to ensure that only the post 30 June 2026 portion of realised gains are included in Division 296 superannuation earnings.
Small funds, including SMSFs, can elect to adjust CGT cost bases to market value at 30 June 2026 for Division 296 purposes (an irrevocable election with recordkeeping requirements). The election, where made, is at the fund level, that is, it will apply to all fund CGT assets held. Further, the election will not effect the CGT cost base for the purpose of calculating the capital gains or loss arising from the disposal of the asset.
SMSFs may require actuarial certification
For members of an SMSF, superannuation earnings will be attributed to members in accordance with separate requirements prescribed by regulations. These regulations may require the attributed amount to be based upon an actuary’s certificate, similar to where an SMSF claims exempt current pension income (ECPI) using the proportionate basis.
Different attribution rules may apply for legacy defined benefit pension interests in an SMSF.
Start date and timing
The measure is to commence on 1 July 2026, focusing on TSB at 30 June 2027. First notices of assessments expected to be issued in the 2027-28 financial year.
2027-28 and following income years focus on higher of TSB at start and end of the income year.
The revised Bill is detailed and technical; much of the operational detail will arrive in regulations and ATO guidance. It appears that much of the administration and compliance burden has been shifted to the SMSF and their accountant/administrator. This appears to be an inevitable consequence of prosecuting the argument for superannuation earnings to be more aligned with taxable income.
As it progresses through the Parliament to become law, affected individuals should consider seeking advice from their advisers. SMSF advisers, accountants, administrators and lawyers should also be prepared for another wave of enquiries from their clients on how this revised measure affects them and what action, if any, they should be considering. We will be developing education webinars, courses and publications to support you and expand your knowledge of this new tax so you can best assist your clients.
