Super Tax 2026 Panic | Last Chance to Protect Gains Before It’s Too Late

追加: 2026-05-30

[00:00:00]If you have more than $3 million in superanuation, or if you think you might get there in the next 5 to 10 years, then what I am about to tell you affects you directly. And if you have an SMSF with a property or shares that have been sitting there growing for the past decade, there is one specific deadline you absolutely cannot miss. Miss it and you will be paying tax on gains you built up years before this law even existed. Division 296 is now law. It passed the Senate on the 10th of March 2026 and it kicks in from the 1st of July 2026. That is next week. Not next year, not sometime in the future. Next week. And here is the thing that frustrates me about how this has been covered. Most of what you will read or hear about division 296 focuses on whether it is fair, whether it should have passed, whether the threshold is too low. That debate is done. The law is the law. What I want to do on Daniel Retires today is actually walk you through what this tax does, how much it is going to cost real people with real super balances, and the specific steps you can take right now before time runs out. Because there are planning opportunities here that most people are not aware of and some of them close in the next few weeks. If you are not across this, you could end up paying more tax than you need to. Not because the law says you have to, but because you did not know the options. So stay with me. This one matters. And before we go any further, if you are new to Daniel Retires, please hit subscribe and give this video a like. Every week I cover the financial changes that directly affect Australians in or approaching retirement explained in plain language without the jargon. Hit the bell icon, too, so you actually see these videos when they come out. Let me start with the basics because I want to make sure everyone watching is working from the same foundation before we get into the numbers. Division 296 is a new personal tax on superanuation earnings. It applies to anyone whose total superanuation balance sits above $3 million at the end of a financial year.

[00:01:48]If you are above that threshold, you pay an additional 15% tax on the portion of your earnings that relates to the amount above 3 million. Now, here is the first thing most people get wrong about this.

[00:01:58]They hear $3 million and they immediately think that is not me. But think about this for a moment. If your total super balance right now is $2.8 8 million and your fund earns a reasonable return over the next year or two. You could be above 3 million by the time the ATO does its first assessment. And once you are above it, you are in. The tax does not hit your whole balance. It does not tax every dollar your super earns.

[00:02:19]It uses a proportional formula. The ATO works out what percentage of your total super balance sits above 3 million and then applies that percentage to your realized earnings for the year. That percentage of your earnings gets taxed at an additional 15% on top of the 15% your fund already pays. So the effective rate on that slice of earnings becomes 30%. Let me walk you through a real example. So this is concrete. Say your total super balance at June 30th, 2027 is 3.4 million. That means $400,000 is above the threshold. 400,000 divided by 3.4 million gives you a proportion of about 11.76%.

[00:02:54]Now say your super fund earned $200,000 in realized earnings during the year.

[00:02:59]You take 11.76% of that 200,000 which gives you roughly $23,500 and division 296 applies an additional 15% to that amount. So your division 296 tax bill for the year is around $3,500.

[00:03:13]Now for some people that might sound manageable, but this is at a balance of 3.4 million with moderate earnings. Run that same calculation at $4 million or at higher earnings in a good investment year and the numbers grow significantly.

[00:03:26]And remember, this is on top of what your fund is already paying. There is also a tier above the 3 million threshold that almost nobody is talking about. If your total super balance is above $10 million, the additional tax rate jumps to 25% on top of the existing 15%. Bringing the effective rate to 40% on that portion of earnings. The law is structured in two tiers now, 3 million and 10 million, and both thresholds will be indexed to inflation going forward.

[00:03:50]that indexation is actually a meaningful change from what was originally proposed and it matters for your long-term planning. Now, I want to talk about something that I think is genuinely important and genuinely under reportported and that is the situation for people who are close to but not yet at $3 million. If your balance is 2.5 million right now or 2.8 million, you might be thinking this does not apply to me yet. And that is technically true for the 2026 to 2027 financial year. But here is what you need to understand.

[00:04:18]Superanuation balances grow, investment returns accumulate, and the ATO looks at your balance at the end of each financial year. So if you are heading toward that threshold, the decisions you make right now, the structure of your SMSF, the assets you hold, the cost bases on those assets, all of those things will directly affect your tax position the year you cross over. There is a planning tool available right now before the 30th of June 2026 that is specifically designed for people in this situation. It is called the CGT cost base reset. And if you have an SMSF and you are not aware of this, please keep watching because this is the part of division 296 that financial advisers are genuinely scrambling to implement for their clients. Here is how it works. If your SMSF holds assets like shares or property that have grown in value over many years, those assets have what is called an embedded capital gain. The difference between what you originally paid for the asset and what it is worth today. Under normal circumstances, if your SMSF sells that asset in the future and you are above the division 296 threshold at that point, the entire capital gain, including everything that built up before this law even existed, would be included in your division 296 earnings calculation. The CGT costbased reset allows your SMSF to make a one-time election to treat the market value of every directly owned CGT asset as at June 30th, 2026 as the new starting point for division 296 purposes. Not for normal capital gains tax, not for your SMSF's income tax return, just for division 296 calculations. This means any capital growth that happened before June 30th, 2026 is permanently excluded from future division 296 earnings calculations.

[00:05:58]Think about what that means in practice.

[00:06:00]Say your SMSF bought a commercial property in 2010 for $800,000. That property is worth 2.4 million today.

[00:06:07]There is a gain of 1.6 6 million built up over 16 years without the costbased reset. When your SMSF eventually sells that property, the full 1.6 million gain flows into the division 296 calculation, assuming your balance is above 3 million at that point. With the cost base reset, the cost base for division 296 purposes lifts to 2.4 million. Only growth above that figure going forward gets captured.

[00:06:31]1.6 million in historical gains permanently protected. The election does not trigger a CGT event. It does not restart the 12-month clock for the CGT discount. It does not affect your fund's normal income tax position at all. The fund effectively maintains two cost bases for each asset after the election.

[00:06:48]The original one for normal tax purposes and the reset one for division 296 purposes. Now, here is the important part. You do not need to be above $3 million right now to make this election.

[00:06:58]Any SMSF can opt in even if no member currently has a balance above 3 million.

[00:07:03]Meg Hefron, one of the leading SMSF experts in Australia, has been very direct about this. She has said that the costbased election should be considered by all SMSF members, even if their total super balance is under 3 million.

[00:07:16]Because if your balance is growing and your fund holds assets with significant embedded gains, locking in the June 30th, 2026 market value right now could save you considerable tax in the future.

[00:07:27]And here is the part that concerns me about the timing. The election to reset the cost base must be lodged with the ATO by the due date of your SMSF's 2025 to 2026 income tax return. There is no extension. There is no second opportunity. This is a one-time all or nothing election at the fund level. If you miss it, it is gone. And because it applies to all assets across the entire fund at once, you and your SMSF trustee need to make a considered decision based on the specific assets in your fund and where you think your balance is heading.

[00:07:56]This is not a decision to leave to the last minute. If you have an SMSF and you have not spoken to your accountant or financial adviser about the costbased election yet, that conversation needs to happen now. Now, let me address the first year transitional rules because there is a specific protection in place for the 2026 to 2027 financial year that you need to understand. Normally, under division 296, the ATO will assess your balance at the higher of your opening or closing total super balance for the year. That is the higher of your balance at the start of the year or at the end.

[00:08:25]This matters because if your balance dips during the year, that higher opening figure could still trigger the tax. But for the 2026 to 2027 financial year only, the transitional rules say that only your closing balance, your total super balance at June 30th, 2027 will be assessed. Your opening balance at July 1st, 2026 is disregarded for that first year. What this means practically is that if you have a balance that is currently above 3 million, but you have the ability to make a withdrawal before June 30th, 2027 that brings your balance below 3 million and you meet the conditions of release to do that, you could avoid division 296 entirely for the first financial year.

[00:09:02]Now, I want to be very clear here.

[00:09:04]Withdrawing a large amount from super is not a simple decision. You need to consider what you are going to do with that money outside super. Investment earnings outside super are typically taxed at your marginal rate which could be significantly higher than 30% if you have other income. You lose the asset protection that superanuation provides and depending on your situation it could affect your age pension eligibility through the assets test. The point is not that withdrawing is always the right move. The point is that the 2026 to 2027 transitional rule creates a specific window that does not exist in any future year. After this year, the ATO uses the higher of opening or closing balance, which makes that maneuver much harder to execute. So, if you have a balance above 3 million and you are thinking about restructuring, the time to model your options is right now. I want to spend a moment on how the tax is actually paid because this is another area where people have questions. Division 296 is a personal tax liability. It is assessed to you as an individual, not to your super fund. The ATO will issue the assessment to you directly after June 30th, 2027 based on the information your super fund reports about your balance and earnings. You have a choice about how to pay it. You can pay it from your personal funds outside super, which might make sense if you have liquid assets available and you want to preserve your super balance, or you can elect to have the amount released from your super fund to pay the liability, which is what most people will likely choose. For SMSF trustees with a liquid assets like direct property, this creates a specific planning consideration. If your fund holds property and you get a division 296 assessment, you need to have cash available somewhere to pay it, either in the fund or outside. If the fund is mostly in property and cash is tight, that assessment could create real liquidity pressure. This is why some advisers are telling their clients with propertyheavy SMSFS to think carefully about the cash position in the fund in the leadup to the first assessment period. There is something else I want to address that often gets lost in the technical detail and that is the question of why this tax came into being and what it actually represents for Australians who have worked hard to build substantial super balances. The government's official position is that this is about fairness. The argument is that the tax concessions inside superanuation the 15% rate on earnings in the accumulation phase compared to marginal rates of up to 47% outside super represent a very significant subsidy that grows proportionally with the balance. Someone with 30 million in super gets a proportionally much larger tax benefit than someone with 300,000.

[00:11:26]The government says that at some point the size of that subsidy stops being about retirement income and starts being about wealth accumulation and the public interest in subsidizing that diminishes.

[00:11:36]The opposition argument is also worth understanding. Critics of division 296 point out that many people with balances above 3 million did not plan to be above 3 million. They put money into super under the rules that existed at the time, contributed regularly over decades, and the combination of contributions, investment returns, and compounding growth got them to a level they did not specifically target.

[00:11:57]Changing the rules retrospectively, even if not technically retrospective in a legal sense, feels unfair to people who built their strategy around the old framework. Both of those arguments have merit. And I raised them not to tell you how to feel about division 296, but because understanding the policy rationale helps you understand how the law is likely to evolve over time. The threshold is now indexed to inflation.

[00:12:18]That is a meaningful concession that protects against bracket creep and the removal of the tax on unrealized gains was the biggest change from the original proposal. The final version of the law is less damaging than what was first floated. But it is the law and planning around it is now a very real part of retirement strategy for a meaningful number of Australians. So let me bring this back to what you should actually do because I want to leave you with something practical rather than just a detailed explanation of the mechanics.

[00:12:45]The first step is to get your current total super balance across all funds, not just your SMSF if you have one. All of them. your balance with industry funds, retail funds, defined benefit interest if you have any. The ATO looks at everything. If you are not sure of the combined number, your most recent tax assessment will have it or you can check through my gov. The second step, if your combined balance is above 3 million or heading there in the near future, is to speak to your financial adviser or SMSF accountant about the costbased reset election before the June 30th, 2026 deadline. Do not assume they are already on top of this for you. Some advisers are across it. Others are overwhelmed with the volume of clients who need attention right now. Ask the question directly. What is my position on division 296? Have we considered the costbased election? And what is the deadline for my funds return? The third step is to understand the transitional year rules and model what your balance will look like at June 30th, 2027. If you have the ability to make strategic withdrawals or restructure how assets are held between you and a spouse, the 2026 to 2027 year is the window in which those decisions carry the most benefit.

[00:13:51]The fourth step, particularly if you have a property heavy SMSF, is to review your fund's liquidity position. Division 296 assessments will arrive after June 30th, 2027. And if your fund is predominantly in a liquid assets, you need a plan for where the cash to pay the assessment comes from. And the fifth thing, which I genuinely believe more people should be doing, is to use one of the online division 296 calculators to get a rough estimate of your potential liability. Hudson Financial Planning has one on their website that is straightforward to use. You put in your total super balance and your estimated realized earnings, and it gives you a breakdown of what you might owe. It is not a substitute for a professional advice, but it gives you a concrete number to work with before you walk into a conversation with your adviser. Before I wrap up, I want to mention the payday super changes that are also coming from July 1st, 2026 because they go handinhand with division 296 as part of what is genuinely one of the biggest overhauls of the super system in recent years. From the 1st of July 2026, employers will be required to pay super at the same time as salary and wages every pay cycle rather than quarterly.

[00:14:54]This is the payday super reform. For employees approaching retirement with a salary still coming in, this means your super balance will now be receiving contributions more frequently, which has a compounding effect over time. For people already in retirement drawing on their super, this change is less directly relevant. But if you have children or grandchildren still in the workforce, they will benefit significantly from this over their working lives. The reason I mention it alongside division 296 is this. The combination of payday super bringing balances up faster and division 296 taxing those balances above 3 million means that the number of Australians affected by division 296 will grow over time even with the inflation indexing on the threshold. If you are 45 or 50 right now with a balance of 1.5 million, the trajectory of your super over the next 15 to 20 years puts division 296 very much on the table for you. It is worth having it in your planning framework now, not just when you are already above the threshold. So to bring everything together, division 296 is now law. It starts from July 1st, 2026. The first ATO assessments will come after June 30th, 2027 based on your total super balance and realized earnings across that financial year. The tax applies a 15% additional rate on earnings proportional to the balance above 3 million, bringing the effective rate to 30% on that slice. Above 10 million, the effective rate reaches 40%. The transitional firstear rules provide a specific window for planning because only the June 30th, 2027 closing balance is assessed, not the opening balance.

[00:16:23]That window does not exist in any future year. The CGT costbased reset election is a one-time opportunity for SMSFS to lock in the June 30th, 2026 market value of fund assets for division 296 purposes, permanently protecting pre2026 gains from the calculation. Any SMSF can make this election, not just funds whose members are currently above 3 million.

[00:16:44]And the election deadline is the due date of the 2025 to 2026 SMSF income tax return. If your super balance is already above 3 million, speak to your adviser this week. If it is heading toward 3 million, speak to your adviser this month. And if you have an SMSF with assets that have grown substantially over the years, make sure the costbased election is specifically on the agenda for that conversation. This is not a law that allows you to wait and see. The decisions you make in the next few weeks and months will determine how much of your super earnings end up being taxed under division 296 for years to come.

[00:17:17]Now, here is what I would love to hear from you before you close this video.

[00:17:20]Leave a comment below and tell me where your super balance is relative to the 3 million threshold. Are you already above it? Are you approaching it in the next few years? Or does this feel like something further down the track? I ask because the comment section on Daniel retires has become a genuinely useful space where people share their experiences and questions and it helps me understand what topics to dig into next. If you found this video useful and you know someone with a substantial super balance or an SMSF, please share it with them directly. The CGT costbased election deadline is weeks away and I have spoken to people who had no idea this option even existed. One share from you could make a real difference to someone's tax position for the next 20 years. And if you are not already subscribed to Daniel Retires, this is a good time to do that. I cover exactly these kinds of changes, the ones that are buried in legislation and budget papers, explained in plain language, so you can actually make decisions with the information. Hit subscribe, hit the bell, and I will see you in the next