Over the last 12 months we have been monitoring the development of the proposed Div 296 tax for superannuation funds. The draft exposure bills were released in late December 2025 and the consultation process ended mid January 2026. The bill was then introduced to parliament on 11 February 2026.

Professionals and their clients are now faced with new considerations that could significantly impact superannuation and succession strategies. While the proposed tax is not yet law, commentary indicates it is likely to take effect from 1 July 2026. Understanding its potential effects is crucial to ensure appropriate advice and planning takes place prior to 1 July 2026.

Key details of the Div 296 exposure drafts

Expanding on our previous article discussing the major changes following the Government’s announcement in October 2025, some of the key details of the exposure drafts are:

A two-tier system will be introduced

  1. For balances above $3m but under $10m, an additional 15% tax will apply to the proportion of the earnings over balances of $3 million (i.e. the existing 15% plus an additional 15%).
  2. For balances over $10m, a further 10% tax will apply to the proportion of the earnings over the balances of $10 million (i.e. 40% total).
  3. Whether the threshold has been met will be measured by the higher balance at the start of the financial year and the end of the financial year. Although for the first year (2026/2027) it will only be the balance at the end of the financial year. For the year of death, only the balance at the start of the year will be used.
  4. Both thresholds will be indexed for inflation.

Removal of the unrealised capital gains tax

  1. Taxpayers will no longer be taxed on the unrealised increase in value of capital gains tax assets. Tax will only be imposed on the sale of an asset or on income.
  2. For unrealised gains accrued prior to 1 July 2026, a CGT cost base reset concession election is available, allowing the cost base (for div 296 tax purposes only) to be reset to the market value as at 30 June 2026. This election must be made in relation to all assets held by the fund - not in relation to a singular asset. This may negatively impact a fund with any assets in a loss position.

Death benefits will be subject to Div 296 tax

  1. The tax will now also apply in the year of death.
  2. Any insurance proceeds paid as part of the superannuation death benefit will contribute to the total superannuation balance.

Franking credits

  1. There is currently speculation that Div 296 may result in additional tax payable in respect of franked dividends received by the fund. However, the treatment of franking credits as proposed aligns with the tax system more generally.
  2. For Div 296 earnings, the assessable income of the fund includes franking credits (e.g. if the fund receives a fully franked dividend of $70, the assessable income of the fund is $100, being the fully franked divided plus the $30 franking credit).
  3. However, the franking credit is still used as a tax offset when determining the ultimate tax liability of the fund (rather than the franking credit reducing the assessable income). This approach is consistent with the treatment of franking credits throughout the tax system.

Key Estate Planning Considerations

As we have discussed previously the Div 296 tax will not necessarily mean that it will always be better to withdraw funds from your superannuation. Ultimately the decision will come down to a multitude of factors unique to the individual.

Nevertheless, with the likelihood that Div 296 take will effect from 1 July 2026, it is important for our clients to review the circumstances (even to conclude that no action or changes are needed).

The key considerations

  1. Couples May Be Drawn Into the $3 Million Scope: Many couples who currently fall below the $3 million superannuation balance threshold may find themselves within scope if they receive a spouse’s death benefit. This could result in unexpected Division 296 tax liabilities, particularly if life insurance proceeds are paid as part of the superannuation death benefit.
  2. Death Benefits and Div 296 Tax from 2027/2028 will be subject to Div 296 tax. This change introduces several estate administration challenges:
    1. Delays in Estate Administration: The need to calculate and pay Div 296 tax may slow down the finalisation of estates, impacting beneficiaries and executors.
    2. Unintended Tax Outcomes: If a superannuation death benefit is paid directly to a beneficiary (outside the estate), the Div 296 tax will be borne by estate beneficiaries, leading to outcomes that may not have been anticipated in the estate plan.
    3. Executor Risks: Executors who distribute estate assets without accounting for potential Div 296 liabilities may find themselves facing unexpected tax bills after the estate has been distributed.
  3. Cost Base Reset Limitations
    1. The election to reset the cost base for fund assets will need to be made in the approved form by the end of the due date for lodgment of the 2026-2027 income year income tax return for the fund (there is only one chance to get this part right).
    2. While current balances may not require an election to apply the cost base reset, future changes, such as a spouse receiving a death benefit, could push balances above the $3 million threshold. Importantly, there is no ability to reset capital gains accrued prior to June 2026 after the due date for the election (the due date for the 2026-2017 income tax return, as discussed above). This could result in higher tax liabilities on gains that were not anticipated.
    3. However, caution should be exercised when determining whether an election should be made - currently the election can only be applied to all CGT assets in the fund. This means that any assets that currently have unrealised losses will have a lower cost base for Div 296 purposes (increasing the capital gain).

Practical Steps

Because Div 296 tax is not yet law, there is still a degree of uncertainty and speculation. However, a review of your estate plan will be particularly important if you had made specific provisions for your superannuation to go to certain beneficiaries.

Here are some practical steps that can be taken now:

  1. review of superannuation balances and model potential tax outcomes for tax on earnings, tax when a capital gain is realised when in the superannuation system vs individually or in other entities;
  2. consider not only current member balances, but what that balance may look like in the future particularly if receiving all or part of a spouse’s balance;
  3. reviewing estate planning documents and strategy; and
  4. seek specialist advice on the timing and structure of superannuation withdrawals, CGT implications, and succession planning.