What is Division 296?

Division 296 is a proposed additional 15 percent tax on the portion of a super fund member's earnings attributable to a Total Super Balance above $3M. Combined with the existing 15 percent accumulation tax, this is effectively 30 percent on the earnings on the over-$3M portion.

Is the $3M threshold indexed?

No. The threshold is a fixed dollar figure under the proposal. Bracket creep will pull more members into Division 296 every year as super balances grow with the market.

Does Division 296 tax unrealised gains?

Yes. The Division 296 calculation is notional - based on the year-on-year change in Total Super Balance - so unrealised increases in property value can trigger tax even before the property is sold. This is the most controversial mechanic.

When does Division 296 start?

The measure has been delayed multiple times and reintroduced. The start date is editable in the Byrz engine to reflect current legislative status; check Treasury and the Bills page for the latest enactment date.

Division 296 explained: how the >$3M super tax affects SMSF property

Division 296 is the proposed measure that adds 15% additional tax on the portion of a super member's earnings attributable to a Total Super Balance above $3M, from the 2026-27 income year. Announced as part of the 2023 Better Targeted Superannuation Concessions package and reaffirmed in the 2025 Budget, it's still not law - but it's already changing how SMSF investors plan property holdings. Here's how the mechanic actually works and what it means for SMSF property.

The mechanic in one paragraph

Take your TSB at end of year. Subtract $3M. Divide by TSB - that's the “excess proportion.” Multiply that proportion by the year's notional earnings (change in TSB adjusted for contributions and withdrawals). Multiply the result by 15%. That's your Div 296 tax for the year, payable personally (not by the fund).

What “notional earnings” actually means

This is the trickiest part. The Div 296 base is not the realised income the fund earned. It's a notional figure calculated as:

Notional earnings = (TSB end of year)
                  − (TSB start of year)
                  − net contributions
                  + withdrawals (incl. pension payments)

That means unrealised gains count. If your SMSF holds a property whose market valuation jumps from $1.5M to $1.7M, the $200,000 unrealised uplift goes into your TSB change, increases your notional earnings, and creates a Div 296 liability - even though no cash has changed hands.

This is the design feature critics object to most loudly. It also creates real cashflow problems for SMSF property owners, because the tax is payable in cash but the underlying gain isn't.

Why SMSF property is hit hardest

For a member with $4.5M TSB consisting mostly of a $1.6M SMSF property and other investments:

Excess proportion: ($4.5M − $3M) / $4.5M = 33.3%
Year with $300k notional earnings (incl. $200k unrealised property gain):
Attributable earnings: $300k × 33.3% = $100k
Div 296 tax: $100k × 15% = $15,000

That $15k is on top of the existing 15% (accumulation phase) or 0% (pension phase) tax on actual realised earnings. And it has to be paid in cash, by the member personally.

For an SMSF whose primary asset is one illiquid property, paying a Div 296 liability triggered by unrealised property growth means either drawing down liquid super assets (shares, cash) or making a personal contribution to fund the tax - both have their own constraints under contribution caps.

The $3M threshold isn't indexed

The single biggest design problem in Div 296 is that the $3M threshold has no indexation mechanism in the current draft. Under 3% inflation, $3M today buys ~$2.2M worth of 2026 super in twenty years - bracket creep that will pull millions of members into Div 296 over time.

For an SMSF property owner with a $2M property today, modest annual capital growth plus continued contributions will likely push the fund over $3M within a decade. The Div 296 trajectory across the property's hold matters more than the current liability.

How Div 296 changes the SMSF property decision

For an investor weighing whether to hold residential property inside an SMSF:

If you're under $3M TSB and likely to stay there: Div 296 isn't a factor. SMSF tax treatment (15% accumulation / 0% pension) on the property remains the headline advantage.
If you're near or over $3M TSB: model the property's contribution to TSB growth across the hold. The Div 296 liability on unrealised gains compounds with property appreciation.
If you're well over $3M TSB: the SMSF tax advantage is materially eroded. A 50%-discounted personal ownership of the same property may produce similar after-tax outcomes with full access to the equity. The Div 296 cashflow problem on an illiquid property holding is a real risk worth quantifying.

Calculate it for your fund

Our Division 296 calculator gives a single-year estimate from two inputs (TSB + annual earnings). For multi-year modelling that captures the property's contribution to TSB growth + the cashflow trajectory, the full Byrz $49 property report handles it across the forecast horizon.

Caveats

Division 296 is proposed as of late 2026. The Bills have been introduced previously but not passed in the current form. The mechanic, threshold, rate, and start date may all shift in the final legislation. The unrealised-gains treatment in particular has attracted significant pushback and may be amended.