With the Federal Election now behind us, Treasury has confirmed that the proposed Division 296 “earnings tax” on superannuation balances above $3 million will proceed from 1 July. While draft legislation is still being refined, the core policy settings are now clear and SMSF trustees should start planning—especially where significant real property sits inside the fund.
Key Features of the Division 296 Proposal
- Who is affected?
- Members with a total super balance (TSB) exceeding $3 million on 30 June each income year.
- How is the tax calculated?
- A 15 % additional tax on the member’s proportionate share of “earnings” attributed to their TSB above $3 million (effectively lifting the marginal rate on those earnings to 30 %).
- Earnings are not limited to realised gains; they include changes in unrealised asset values.
- When does it commence?
- Earnings from 1 July (first assessment in 2026–27) will be subject to the new regime.
- Payment mechanism
- The ATO will issue a Division 296 assessment to the member, who can pay personally or elect for their fund to release the amount (similar to Division 293 procedures).
Practical Pressure Points for Property-Rich SMSFs
Real property often drives large year-on-year valuation movements, making many SMSFs vulnerable to the new “unrealised gain” metric. Trustees should therefore consider:
- Re-weighting asset mix
- Moving commercial or residential property out of the fund into a member’s personal or family group structure.
- Timing of limited recourse borrowing arrangements (LRBAs)
- Accelerating pay-down or refinancing before valuations rise.
- Using in-specie contributions or benefit payments
- Strategically transferring property in or out to keep TSB under the $3 million cap.
Land Transfer Services: How We Can Help
Hill Legal’s dedicated Land Transfer Team offers an end-to-end service for SMSF property transactions, including:
| Service | Why it Matters under Division 296 | Our Edge |
| In-specie transfers of property into or out of an SMSF | Optimise TSB before 30 June valuation | Stamp duty & CGT structuring by senior property lawyers |
| LRBA establishment, refinance or unwind | Align gearing strategy with the new earnings tax | Seamless coordination with lenders & corporate trustees |
| Partial transfers to related parties | Unlock equity while reducing TSB | Robust compliance with Reg 13.22C & s66 SIS Act with allowable acquisitions. |
| Benefit payments in property | Satisfy condition of release without fire-sale discounts | Experienced deeds team prepares all ancillary documents |
Next Steps
While the division 296 tax effectively applies in the 2026 financial year, proactive restructuring now to manage CGT issues may be beneficial to funds with large account balances. Acting early can be the difference between a manageable strategy and an ongoing 30 % tax on unrealised gains.
