Monthly technical briefing - February 2026

On 19 December 2025 Treasury released draft legislation regarding the government’s Better Targeted Superannuation Concessions policy. This exposure draft follows the changes to the proposed tax that were announced by Treasury in October 2025.

Key features of the proposed Division 296 tax include:

1. New methodology for calculating superannuation earnings: Broadly, the tax will now be calculated based on the amount of the fund’s taxable income attributed to in-scope members, rather than a change in the member’s total super balance (TSB).

There will be adjustments to the fund’s taxable income to work out the fund’s ‘Division 296 fund earnings’, including:

• Capital gains to be adjusted for unrealised capital gains accrued up to 30 June 2026 (refer to point 2 below)
• Reduced by assessable contributions (eg super guarantee and salary sacrifice)
• Increased by net exempt current pension income (ie income attributable to pension accounts)
• Reduced by the fund’s non-arm’s length income
• Increased by a pooled superannuation trust amount 

2. Adjustment for unrealised capital gains at 30 June 2026: To ensure only earnings derived after the commencement of the legislation are taxed, there will be a CGT adjustment for accrued capital gains prior to 1 July 2026.

This adjustment is only relevant for Division 296 tax purposes. The way the CGT adjustment applies depends on the type of fund, as follows:

• Small super funds (ie SMSFs and Small APRA Funds)
  
  Small super funds will be able to adjust the cost base of all assets in the fund on 30 June 2026 to the market value at the end of that day.
  
  Electing to adjust the cost base does not change the acquisition date of the asset and therefore does not affect the 12-month ownership period for determining whether the CGT discount applies.
  
  The election must be made via the approved form by the date the fund is required to lodge its tax return for the 2026-27 year. Once the election is made it cannot be revoked. The election applies to all assets of the fund; it can’t be applied to some and not others.
  
  The Bill indicates that if a fund applied this election resulting in a net capital loss, this loss cannot be carried forward and used to reduce Division 296 fund earnings in future years.
  
  
• Large funds
  
  An adjustment can be made by large funds where it affects the member’s super earnings for any income year from 2026-27 to 2029-30. No adjustment is to be made from the 2030-31 income year onwards.
  
  The adjustment will involve multiplying the net capital gain by a factor (that must be less than 1), that will be prescribed in the regulations. According to the explanatory material to the draft Bill, the factor will be representative of the approximate share of capital gains of a large fund’s assets that accrued after the commencement of these laws. In addition, where the modified net gain is negative, it will be treated as nil and cannot be carried forward.

3. Allocation of earnings to members: The general requirement will be that Division 296 fund earnings must be attributed to members on a fair and reasonable basis, having regard to the matters prescribed by regulations.

However, the draft Bill states that this general approach doesn’t apply to small super funds (ie SMSFs and Small APRA Funds) or other prescribed funds. The allocation approach for these funds will be contained in regulations. The Government’s draft guidance on these regulations indicates that a ‘time-weighted share of fund’ approach might apply and will require an actuarial certificate with the calculations. The formula provided in the draft guidance for calculating the proportion of earnings is as follows:

In addition, separate rules will apply to defined benefit accounts that are still accruing. The methodology looks at the change in TSB over the income year multiplied by factor to be prescribed in regulations. TSB will be adjusted to remove contributions and add back withdrawals.

4. Total super balance (TSB): TSB will continue to be used for determining who is subject to the tax.

In the original proposal those with a TSB of more than $3 million at the end of the income year (i.e. 30 June) would be subject to the tax where they had a positive earnings amount.

In these revised Division 296 rules, the following is proposed:

• In 2026-27 those with a TSB of more than $3 million at 30 June 2027 will be in scope
• In 2027-28 and future years, those with a TSB of more than $3 million (or higher indexed amount) at the end of the income year or prior 30 June will be in scope. For example, in the 2027-28 year, if the individual’s TSB at either 30 June 2027 or 30 June 2028 exceeds $3 million, the individual will be in scope.

Points of interest:

• If someone wanted to prevent having a Division 296 liability in 2026-27, they would need to reduce their balance below $3 million before 30 June 2027.
• If someone wanted to prevent having a Division 296 liability in 2027-28, they would need to make any withdrawals to reduce their TSB below $3 million at 30 June 2027 and 30 June 2028.

5. Two new tiers for applying the Division 296 tax: The Government’s original intention was to apply an additional 15 per cent tax on the proportion of earnings on balances above $3 million. The new proposal is to will have two tiers, as follows:

• Tier 1: An extra 15 per cent tax will be applied on the proportion of earnings above $3 million (to be called the ‘large superannuation balance threshold’)
• Tier 2: A further 10 per cent tax will be applied on the proportion of earnings for balances above $10 million (to be called the ‘very large superannuation balance threshold’)

6. Exclusions: The draft Bill proposes to exclude the following people from Division 296 tax:

• Child recipients of superannuation income streams resulting from the death of a parent
• Individuals who have received a structured settlement contribution in relation to a personal injury
• Individuals who die before 30 June 2027

Point of interest:

• In the original proposal, individuals who died on any day other than 30 June, would not be liable for the tax in the year of death. Under the revised proposal, this exclusion is only applied to the 2026-27 year. In subsequent years, the tax will be levied on the deceased’s estate, irrespective of the day the person died.

7. No negative earnings: The original Division 296 proposal included a rule that would carry forward negative earnings and be offset against future positive earnings. The revised Bill does not include this approach. If calculated earnings are negative, Division 296 tax will not apply in that year and no amount is carried forward.

8. Threshold indexation: Both the $3 million and $10 million thresholds will now be indexed to the consumer price index, and increased in increments of $150,000 and $500,000 (respectively).

9. Payment of tax: The Division 296 tax liability will ordinarily be payable within 84 days after the ATO gives the individual a notice of assessment for the tax. Tax attributable to defined benefit interests that are yet to be paid can be deferred.

Payment of the liability can be done via releasing an amount from super or from non-super sources.

10. Delayed start date: The new tax is now proposed to start from 1 July 2026, a year later than originally planned. 

Regulations to be released: The draft Bill outlines a number of areas that will be prescribed in regulations.

Next steps:

• The feedback period for this Bill ended 16 January 2026
• The Bill will need to enter Parliament and pass both houses before the changes become law
• Draft or final regulations are still to be released by the Government

Further information can be found here:

• The Treasury – Draft Bill and Explanatory materials
• The Treasury – Additional guidance on proposed regulations

On 26 November 2025 the Opposition introduced a Bill to the Senate to make changes to the downsizer contribution rules.

Proposed changes in the Bill are:

• Reduce the minimum contribution age from 55 to 50
• Increase the period to contribute from 90 days to 12 months, from sale
• Increase the maximum contribution amount from $300,000 to $500,000

The Bill is in the Senate at the time of writing and the changes are not yet law.

Further information can be found here: Unlocking Supply of Family Homes Bill 2025

On 26 November 2025 the Government introduced a Bill to the House of Representatives that aims to streamline the choice of super fund process when onboarding employees.

From the explanatory material to the Bill, super fund ‘Stapling was introduced in 2021 as part of the Your Future, Your Super reforms, to address issues with employees unintentionally opening new superannuation accounts every time they started a new job. Broadly, a ‘stapled fund’ is an employee’s existing superannuation account.’

The Bill amends the choice of fund requirements to provide greater flexibility for when an employer can make a request to the Australian Taxation Office (ATO) for the employees stapled fund information. Allowing employers to request the stapled fund information earlier in the onboarding process will enable them to disclose or incorporate this information into the standard choice form for the employee. Disclosing this information to employees will assist the employee in making their choice.

Under the current law, employers can only request an employee’s stapled fund from the ATO after the employee is given a standard choice form, if the employee has not already chosen a super fund.

The Bill proposes to allow an employer to make the stapled fund request to the ATO prior to, at the time of, or after the time the employee is given the standard choice form.

Further information can be found here: Treasury Laws Amendment (Supporting Choice in Superannuation and Other Measures) Bill 2025

Guidance on when the ATO can issue education directions for contraventions by SMSFs

In instances where an SMSF is found to be in contravention of the Superannuation Industry (Supervision) Act 1993 and/or its associated regulations, the Australian Taxation Office (ATO) may exercise a range of compliance measures. Among these is the option to issue an education direction to a trustee or a director of the corporate trustee.

On 15 January 2026 the ATO issued Practice Statement Law Administration (PS LA) 2026/1. This advice provides guidance to ATO staff on when it is appropriate to issue an education direction.

Generally, giving an education direction will play an essential role in cases where the person's lack of knowledge or understanding of their obligations contributed to the contraventions. An education direction can be used in conjunction with other compliance options, such as an administrative penalty or rectification direction.