Division 296 super tax explained (including calculator)

We know wading through the numbers alone isn’t everyone’s idea of a great time, so we’ve put together a simple calculator to estimate your Division 296 tax liability for 2026–27.

*including dividends, rent, interest, realised capital gains, etc.

Calculation of fund earnings

A method for super funds to calculate their taxable earnings for the purposes of Division 296 is included in the law.

If you’re not a member of a self-managed super fund (SMSF) this detail can help you understand how the tax operates but you will not have to apply the rules yourself. Your super fund will do all the work.

If you have an SMSF, your role as a trustee includes applying the rules correctly in your fund.

To work out Division 296 fund earnings, the following formula is applied:

The below sections clarify the meaning of each of the items included in the formula.

Taxable income/loss

The taxable income or loss in the earnings calculation includes all the taxable income of the fund for the year, such as concessional contributions, rent, dividends, interest, and realised capital gains and losses. Realised capital losses on assets that are not segregated pension assets can be carried forward from previous years and used to reduce taxable capital gain.

Gains or losses on segregated pension assets are not included in the fund’s taxable income for other purposes because assets supporting pensions are not taxable. Since Division 296 tax does apply to pension assets, the taxable income/loss for Division 296 purposes must be adjusted to account for them.

To adjust the taxable income, realised capital gains/losses from segrated pension assets during the financial year are added. Capital losses on segregated pension assets cannot be carried forward, so any loss that is not absorbed by gains during the income year is forfeited.

If you have a defined benefit, your fund can’t calculate earnings on your defined benefit entitlement in the usual way because investment growth doesn’t affect the value of your account. Instead, the fund must subtract your previous 30 June TSB value from your TSB value at the end of the financial year, make adjustments for any contributions and withdrawals made during the year, and then multiply the result by a prescribed factor which will be specified in regulations. Supporting regulations will also define TSB value for defined benefits and methods to calculate it. The TSB value is intended to reflect the value of your benefit if you withdraw it.

Until 2029–30, funds with more than six members are eligible to CGT relief similar to that described above for SMSFs. The relief will be applied by multiplying the fund’s realised capital gains by a factor less than one that will broadly reflect the average holding period of assets in APRA-regulated funds. The factor for each year will be set in regulations after consultation with the industry.

Assessable contributions

Assessable contributions are concessional contributions that have been made to the fund during the year. These contributions form part of a fund’s taxable earnings but are not investment income, so need to be removed from the calculation for Division 296 tax purposes.

Net exempt current pension income (ECPI)

Net ECPI is the amount of ECPI less total deductions related to that income the fund could make if the income was taxable.

Net ECPI is not taxable income of the fund since investment income from assets supporting retirement phase members is tax-free. Although net ECPI is not taxable for the fund, it must be added to fund earnings for Division 296 purposes because the tax covers the investment earnings of members who are in retirement phase.

Non-arm’s length component

Some funds have income from non-arm’s length investments. This income is taxed at the highest marginal rate. It is subtracted from fund earnings for Division 296 purposes to avoid it being subject to tax at a level above the highest marginal rate.

Pooled superannuation trust (PST) component

Some super funds have investments in one or more PSTs. These entities account for appropriate superannuation taxes internally and provide an after-tax return to the super funds that invest in them.

PSTs will separately work out their Division 296 income and provide each fund that holds units in the PST with details of the share of Division 296 income that should be allocated to their holdings.

Collection of the tax

Those who have been liable for Division 293 tax in the past will be familiar with the assessment and payment process that will be used. The ATO will send assessments to affected individuals, who may then choose to release the tax from their super or pay the liability from their own resources outside super.

In a small concession, the interest rate applied to late payments is four percentage points lower than the rate that applies to most other overdue tax payments.

The released explanatory material states that the lower interest rate should be closer to market rates and is intended to avoid penalising people in the “very rare circumstances” that they do not have available funds within or outside super with which to pay the tax liability. This could apply to those who have SMSFs that have most of their assets tied up in illiquid investments such as property.

Exceptions

People who have received a structured settlement contribution or who are child recipients of death benefit pensions are not subject to the Divison 296.

Earnings from constitutionally protected (untaxed) funds for State higher level office holders, along with earnings from the super of sitting Justices of the High Court appointed before 1 July 2025 and earnings from non-complying funds are exempt from tax. The balances of these accounts will however be included when assessing whether the $3 million cap has been reached, so tax can be applied to the earnings of other superannuation interests held by the same individual.

Future indexation

The $3 million threshold will be indexed to CPI in increments of $150,000 and the $10 million threshold will be indexed to CPI in increments of $500,000.

If CPI is sufficient enough to trigger indexation, the first increase will be to $3,150,000 and $10,500,000 respectively.

The impact on retirees

Retirees can currently transfer up to $2 million (the transfer balance cap) from their accumulation accounts into retirement phase pension accounts. Investment earnings on retirement phase accounts are tax free within the fund but are not exempt from Division 296 tax.

The value retirement phase accounts is included in your TSB and counts towards the $3 million threshold for calculation of Division 296 tax. Investment earnings on retirement phase accounts are included in the taxable earnings to which Division 296 tax will be applied as described above.

Retirees who have a total balance (including retirement phase interests and accumulation phase interests) above $3 million will therefore be affected by Division 296 tax in the same way as anyone else.

The legislation also changes the definition of TSB so it captures the ‘TSB value’ of benefits annually. We will know more about this when regulations are finalised, but it means that non-account-based pensions (including defined benefit pensions) need to be revalued annually.

The change is needed because the value of these pensions for TSB purposes is currently determined only when the pension starts and does not change. This renders the current TSB definition unsuitable for the purposes of Division 296, which requires that the annual change in value of accounts is known.

Since the change in definition applies across the board, not just to Division 296 tax, it will have broader consequences for other measures that refer to the TSB such as concessional contribution caps and eligibility to use carry-forward concessional contributions.

How earnings are allocated between members

Although Division 296 tax is assessed to individuals, super funds must first calculate earnings at the fund level and then allocate those earnings between members.

For SMSFs, Treasury has indicated that regulations may require the use of an actuarial certificate to allocate earnings, even for some funds that are entirely in accumulation phase.

Treasury has also indicated that SMSFs with assets notionally allocated to specific members will still be required to apply a common allocation method, effectively ignoring those specific allocations.

Large APRA-regulated funds will instead be required to allocate earnings between members on a fair and reasonable basis, with reference to how long the individual has been a member of the fund and the investment option(s) they hold.

At the time of publication, the regulations that will confirm the details of how earnings must be allocated are available only in draft form. Consultation with industry may further modify the regulations before they are finalised.