Update, October 2026: This article was written when the revised proposal was announced in October 2025. The legislation passed in March 2026 and applies from 1 July 2026. Under the final law the extra tax is 15% on earnings attributable to balances above $3 million, plus a further 10% above $10 million, taking the total rate on that slice to as much as 40%. SMSFs and other small funds can elect to reset asset cost bases to 30 June 2026 values. See the final rules.

The federal government has responded to fierce industry criticism, abandoning its plan to tax unrealised gains in superannuation. However, the revised Division 296 proposal, set to start from 1 July 2026, will still impose significant new taxes on Australia’s largest super balances.

Key changes

• No tax on unrealised gains. The most contentious element, taxing paper gains, has been dropped. Only realised earnings will be taxed, removing the risk of tax bills without the cash to pay them.
• Two tiers. An extra 15% tax on earnings attributable to balances above $3 million, and a further 10% on earnings attributable to balances above $10 million.
• Indexed thresholds. Both thresholds will be indexed, but in increments ($150,000 for the $3 million threshold and $500,000 for the $10 million threshold) rather than every year.
• Delayed start. The regime applies from July 2026, with the first year based on balances at 30 June 2027.

How will it work?

The tax remains a personal liability, but members can pay it themselves or have it released from their super. Funds will calculate earnings based on taxable income, aligned with existing tax concepts. The ATO will identify affected members and request information from their funds.

Example. Julian has $15 million in super at 30 June 2027. Eighty per cent of his balance ($12 million) is above $3 million, and a third ($5 million) is above $10 million. If his share of the fund’s taxable income is $500,000, he faces an extra tax bill of $76,665, on top of the 15% already paid by the fund.

Questions that were still open at the time

• Realised gains. Would the rules tax only gains accrued after July 2026, or all gains realised after that date regardless of when they built up? Critical for SMSF trustees with long-held assets.
• CGT discount. The government said the tax would be closely aligned to existing tax concepts, but it wasn’t explicit about the one-third discount for assets held over 12 months.
• Pension phase income. Most members with large balances are in pension phase, where much of the income is tax-exempt. How that would be factored in was unclear.
• Total super balance. The earlier proposal changed how balances are calculated for members with limited recourse borrowing arrangements and defined benefit pensions. Whether those changes would stay was unclear.

Winners and losers

Dropping the tax on unrealised gains is a clear win for SMSF trustees and large fund members. But a combined rate of up to 40% on earnings above $10 million will prompt many to rethink the role of super in their wealth planning. For those with large unrealised gains built up before July 2026, uncertainty about transitional rules may prompt some to realise gains before the new regime starts.

Bottom line: the revised Division 296 is less punitive than first proposed, but it is still a significant shift for high-balance members, and the fine print matters.

General information only, current at the date of publication. It does not take into account your objectives, financial situation or needs and is not tax advice.