View Division 296 as two-stage event

SMSF practitioners should view the pending Division 296 tax as rolling out in two stages, leading to two similar but different sets of rules in its first few years of operation, an SMSF sector specialist has noted.

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Auditors Institute ambassador Graeme Colley said the legislation for the new impost that will commence on 1 July was split into two sections based on the $3 million and $10 million thresholds that will apply, as well as the different operation of the tax in its first year and subsequent years.

“You need to talk to your clients about the immediate future. It’s all about the next financial year, the 2026/27 year, as that is what your clients are going to be interested in at the start,” Colley said.

“Once you get to 2027, or a bit later in the 2026/27 year, you are then going to have to get them used to the way in which the legislation works for the next year going forward from 1 July 2027.

“That is something that is going to be a challenge because it’s hard enough for some people to understand how the legislation works. They think they are going to be taxed at 15 per cent on the first $3 million, which is a load of rubbish.”

He said the two stages were further evident in how the Division 296 would be calculated in 2026/27 and then from 2027/28 onwards, and how deceased members would be treated in those periods as well.

“The way in which it works for the 2026/27 year is the closing total superannuation balance (TSB) on 30 June 2027 is used to calculate the proportions of that balance that are over the $3 million and $10 million thresholds [for Division 296 purposes],” he said.

“For the 2027/28 financial year and subsequent years, you are looking at the higher of the opening and closing balances.

“If the member dies during that first year, there is no Division 296 tax payable.

“If a member dies during the 2027/28 and subsequent years, then the TSB on 30 June in the previous financial year is what’s used for calculating the tax.”

He noted in regards to death benefits and Division 296 there was potentially an additional stage if there was a delay in paying those out.

“There is more about the death benefit calculations in the draft regulations at the moment,” he said.

“It’s mainly about the time it takes to pay death benefits out and the way in which the Division 296 tax then gets imposed.

“The way in which the regulations are currently drafted is that it’s not until the time the payments are made that the Division 296 tax gets imposed.

“So you may need to be careful with death benefits that might be delayed because there’s a bit of rock throwing going on [between members].”

March 26, 2026
Jason Spits
smsmagazine.com.au