The Government’s Better Targeted Superannuation Concessions package (Division 296 tax) has this week been introduced to Parliament via the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026. With a consultation period opening on 19 December through to 16 January, it’s fair to say that many in the industry had better things to do over their Christmas/New Year holidays. Yet, submissions were made on time with constructive feedback, only for the Government to ultimately ignore most of it and push forward with these proposed laws.
The measure’s intent — reduce tax concession generosity for individuals with large superannuation balances above $3.0 million (and further reductions for those with balances above $10.0 million). But for SMSF trustees and advisers the policy’s operation turns on many technical features. Below we flag a range of concerns raised from industry submissions and commentary, and explain whether the Bill (and Explanatory Memorandum (EM)) has actually addressed any of these concerns.
But before we do that, here’s a quick recap of the core mechanics of these proposed new measures:
- An individual is in scope if their total superannuation balance (TSB) exceeds the legislated thresholds ( $3 million large threshold and $10 million very large threshold), with the 2026–27 year using the closing TSB only and subsequent years using the greater of the opening or closing TSB as the reference.
- Superannuation funds must calculate a fund‑level “Division 296 fund earnings” figure — generally the fund’s taxable income or loss adjusted for items such as assessable contributions, net exempt current pension income (ECPI), net non‑arm’s‑length components and pooled superannuation trust (PST) components — and funds will report those earnings (and apportioned amounts) to the ATO.
- The reported fund earnings are then attributed to individual superannuation interests on a “fair and reasonable” basis (with the law empowering regulations to prescribe attribution methods or special rules for particular interest types), and an individual’s taxable superannuation earnings for the year are calculated by applying the proportion of their TSB above the thresholds to the relevant superannuation earnings amount.
- The Commissioner will calculate and issue Division 296 assessments to individuals (it is not a self‑assessment), and the legislation includes transitional CGT adjustments and an election mechanism intended to limit taxation of pre‑commencement gains, together with administrative machinery—release authorities, Division 296 debt accounts and Taxation Administration Act amendments—to manage collection, refunds and review/objection processes.
Did the concerns get addressed?
Now let’s explore some of the major SMSF concerns via the numerous industry submissions, and assess whether the Government has addressed any of them within the Bill introduced into Parliament.
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“Higher of two balances” TSB reference — unfairness for brief spikes
- Concern: using the greater of the opening and closing TSB can catch members who merely spike above $3.0m at the start of year (market movement, temporary inflows), leading to a tax on earnings despite not being a large-balance member for most of the year.
- What the Bill does: for the 2026–27 transitional year the draft law uses the end‑of‑year (closing) TSB only. For later years the Bill uses a reference amount based on start or end (whichever is higher).
- Has the Government addressed it? No – Whilst the Government has provided a transitional concession for 2026–27 (closing TSB only) — the longer‑term design retains the opening-or-closing reference, which the Government argues is an integrity measure. Several submissions asked for a permanent closing-only test or alternative mitigations; the Bill does not adopt any change from the exposure draft issued before Christmas. The EM explains the policy rationale but does not change the permanent rule.
Conclusion: disappointing no change to the Government’s initial view, but having transitional relief in year 1 is important. The core concern about permanent use of the higher-of-two balances will create interesting challenges for in-scope members.
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Attribution of fund earnings to members (the “fair and reasonable” rule and regulation power)
- Concern: Industry submissions argued that the attribution of Division 296 fund earnings to individual interests is a central technical risk. A simple pro‑rata split of fund taxable earnings to members is often inappropriate for pooled products, wrap platforms, differing ECPI treatment, reserve or suspense accounts, non‑arm’s‑length adjustments and structures holding indirect assets. Submissions also warned that requiring actuarial involvement without clear rules would impose significant cost and uncertainty for SMSFs.
- What the Bill does: The Bill sets a general “fair and reasonable” attribution requirement for allocating Division 296 fund earnings to a superannuation interest, and it gives regulation‑making powers to prescribe matters that must be taken into account and to specify alternative formula methods for particular interest types. For SMSFs, the Bill expressly provides that attribution instead be determined in accordance with regulations and permits those regulations to require an actuary’s certificate. The EM describes that small funds may use a proportionate / time‑weighted share approach (analogous to the ECPI proportionate method) and notes that the regulations may prescribe use of an actuary’s certificate as an integrity measure.
- Has the Government addressed it? Not particularly. The Government has acknowledged the attribution problem and empowered regulations to prescribe detailed attribution methods, and it has signalled that SMSFs will likely face a regulation‑prescribed approach that may require an actuarial certificate (similar in purpose to the ECPI proportionate method). That means the Bill itself does not set the granular actuarial methodology, certificate form, timing or any exemptions (for example single‑member funds) — those details are left to regulations and ATO administrative practice. Submissions had asked for greater clarity, narrower application of actuarial requirements (or administrative alternatives), and exemptions where actuarial certification are unnecessary; the Bill responds by enabling regulation but does not lock in the reliefs or precise rules the submissions requested.
Conclusion: acknowledged and enabled (via regulation power), but not finalised — industry concern remains that the technical rules must be consulted and published before implementation.
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CGT cost‑base reset, transitional CGT adjustments and “all‑or‑nothing” election
- Concern: Submissions warned that the proposed CGT transitional arrangements are overly complex, administratively burdensome and can produce inequitable outcomes for SMSFs. Key issues flagged were that the draft rules:
- (a) require an “all‑or‑nothing” election that forces trustees to apply the cost‑base reset to all CGT assets held at 30 June 2026 (thereby penalising assets that have fallen in value);
- (b) compel trustees to obtain and retain market valuations and detailed cost‑base records for every asset even where the fund would prefer not to elect;
- (c) do not extend the reset to underlying indirect assets (units in trusts or interests in entities where pre‑2026 gains remain embedded), creating a look‑through gap that leaves pre‑commencement gains exposed; and
- (d) create lock‑in and portability risks where in‑specie rollovers or corporate actions produce replacement assets that may not clearly qualify for relief.
- What the Bill does: The Bill (Schedule amendments to the Income Tax (Transitional Provisions) Act 1997 and related Schedule provisions set out in the EM) implements the CGT adjustment framework substantially as released in the exposure draft. For SMSFs the Bill provides a choice to adjust the first element of the cost base of all CGT assets held at the end of 30 June 2026 to market value and to reduce other cost‑base elements to nil, subject to record‑keeping and timing rules; the election must be made in the approved form, applies to all CGT assets held at that date, cannot be revoked, and must be made by the fund’s 2026‑27 tax return due date. The Bill also preserves the limitation that indirect interests generally are not treated as having their underlying assets reset (except where existing statutory look‑throughs apply). For small‑funds, the cost‑base reset remains the all‑or‑nothing uplift in the Bill.
- Has the Government addressed it? No — the Bill does not adopt any changes requested in submissions. The Government left the transitional CGT rules effectively unchanged from the exposure draft: the election remains all‑or‑nothing for the affected small‑fund pathway, valuations and record‑keeping obligations remain, and the look-through gap for indirect assets is not closed in the Bill. Although the EM/regulatory framework acknowledges operational complexity and the Bill introduces the CGT adjustment mechanisms, it does not implement the principal fixes demanded by stakeholders (for example, permitting asset‑by‑asset elections, setting the reset at the greater of cost base or market value to avoid creating notional losses, extending relief to indirect underlying assets, or deferring the requirement to obtain valuations until a disposal occurs)..
Conclusion: The Bill leaves the exposure‑draft CGT rules unchanged: the small‑fund reset remains an irrevocable, fund‑wide (all‑or‑nothing) election requiring valuations and records for all CGT assets at 30 June 2026, and indirect underlying assets remain largely excluded.
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Treatment on death and reversionary pensions
- Concern: Stakeholders warned that applying Division 296 around a member’s death and to beneficiaries receiving reversionary pensions creates arbitrary, unfair and administratively burdensome outcomes. Key concerns were that: a deceased member’s notional TSB could push over thresholds after death (for example where life insurance proceeds are added and benefits are not paid out promptly), estates could face tax liabilities while entitlements await resolution, and reversionary beneficiaries may inherit pension values immediately and be exposed to Division 296 with little or no time to restructure. As a result, submissions sought either a permanent death exemption, a sensible safe‑harbour timing window for paying out death benefits, exclusion of life insurance proceeds from TSBs, or a 12‑month deferral for counting reversionary pensions for Division 296 as currently applies for transfer balance processing.
- What the Bill does: The Bill (and EM) clarifies that, for the purposes of sections 296‑40 and 296‑45, an individual’s TSB is taken to be nil after they have died — which means the deceased’s own TSB reference amount for Division 296 purposes becomes the TSB just before the start of the income year once death occurs. The Bill also includes a narrow transitional rule: an individual who dies during the 2026–27 income year will not be liable to pay Division 296 tax for that year. However, the Bill leaves intact the rule that the value of a superannuation income stream received by a beneficiary because of another person’s death (including reversionary pensions) counts towards the beneficiary’s TSB; the Bill does not provide a general 12‑month deferral for Division 296 analogous to transfer balance account treatment, nor does it broadly exclude post‑death life insurance proceeds from TSB calculations.
- Has the Government addressed it? Partly, but not to the extent the industry asked. The Government has provided an important technical clarification — a deceased person’s TSB is treated as nil after death (reducing the risk that tax is calculated on a post‑death TSB) and a one‑year transitional exemption for deaths in 2026–27 — which offers some immediate protection. It should be noted that the transitional exception is actually broader in the Bill than it was in the exposure material which had relied upon the Government’s previous position of only exempting the individual from Division 296 if they died prior to the last day of the financial year. However, the broader concerns remain unaddressed: the Bill does not create a permanent death exemption, a multi‑year safe harbour for paying out death benefits, an explicit exclusion of life insurance proceeds from TSBs, or a 12‑month Division 296 deferral for reversionary pensions. Consequently, reversionary beneficiaries and estates may still face unfair or administratively difficult outcomes unless regulations or ATO practice introduce further mitigations.
Conclusion: The Bill gives a useful technical fix (a deceased person’s TSB is treated as nil after death) and a one‑year transitional exemption for 2026–27, but it does not adopt the wider protections stakeholders sought (permanent death exemption, pay-out safe‑harbour, exclusion of life‑insurance proceeds or a deferral for reversionary pensions), so practical unfairness and administrative risks for estates and beneficiaries remain.
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Indirect assets, unit trusts and the CGT look‑through gap
- Concern: the draft CGT adjustment protects directly held assets but not underlying assets held indirectly (units in trusts where the trust holds property). That can mean pre‑2026 unrealised gains embedded in underlying assets are captured later and taxed at the member level — an outcome many submitters warned against.
- What the Bill does: the EM explicitly states the CGT adjustment for small super funds intends to capture CGT assets that produce an income tax consequence for the fund under s104‑5, and that indirect assets are generally not covered (except where look‑through rules already apply, or specific LRBA look-through exists). The Bill therefore does not expand the cost‑base reset to underlying indirect assets.
- Has the Government addressed it? No — the Bill leaves the ‘look‑through’ gap. The EM confirms the policy choice and the resulting limitation, meaning concerns have fallen on deaf ears.
Conclusion: unaddressed — indirect‑asset arrangements are majorly impacted by the lack of action by the Government on this issue.
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Appeal rights, refunds and temporary residents
- Concern: individuals should have express rights to object/appeal Division 296 assessments; refunds (e.g., for departed temporary residents) should carry interest and be administrable (ideally automatic with DASP).
- What the Bill does: the Bill includes TAA amendments to permit objections and standard assessment procedures in many places; however submitters pressed for explicit statements of objection/appeal rights and interest on refunds. The EM notes refunds but does not commit to automatic DASP linkage or interest payments.
- Has the Government addressed it? Partly: the legislative architecture provides for standard objection pathways and release authorities; specific procedural refinements requested by submitters (automatic DASP refunds, interest on refunds) are not mandated in the Bill.
Conclusion: partially addressed via suggested mechanisms in submissions, but practical procedural improvements requested by submitters remain matters for administrative design.
What are the practical takeaways for SMSFs?
The Bill sets out the high‑level framework for Division 296 and includes a number of transitional protections, but many of the detailed concerns raised in submissions it appears that the Government has fundamentally ignored. Some elements we will find more detail within the regulations – which we hope to see this detail soon.
For SMSFs the key areas of concern are clear as highlighted within this article. It’s reasonable to say that in-scope members (and even some that aren’t currently) should begin preparing now, looking at the issues through the 3 stages of Division 296.
We will be watching the passage of these laws as they progress through the House of Representatives and into the Senate to be finalised in readiness for 1 July 2026 start date. Whilst the Greens might try to ‘chest-beat’ on further changes, ultimately I suspect we’ll see this Bill given passage to become law.
What is Smarter SMSF doing to help?
- Creation of the Division 296 tax hub – access a range of fact sheets, calculators, white-label client materials, FAQs, reference materials, and order forms to successfully navigate through these new measures.
- Attend an SMSF Day 2026 event around Australia – understand how these laws will operate and find out about a range of strategies and opportunities that can be implemented with clients likely to be caught by these measures.
- Create documents – Smarter SMSF is and will be providing a range of documents to support the implementation of the Division 296 tax laws, including trust deed changes, commutations and lump sum documents to support withdrawals from super, CGT elections for Div 296 tax purposes and more.
