Has Division 296 been passed into law?

Yes. The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026, which introduces Division 296, passed both houses of Parliament on 10 March 2026 and awaits Royal Assent. The tax applies from 1 July 2026, with the first assessments based on superannuation earnings for the year ending 30 June 2027.

What is Division 296 tax and how does it work?

Division 296 imposes an additional tax on superannuation earnings for individuals whose total superannuation balance (TSB) exceeds $3 million. The rate is 15% additional tax on earnings attributable to balances between $3 million and $10 million (bringing total tax to 30%), and 25% additional tax on earnings above $10 million (bringing total tax to 40%). Critically, the revised legislation taxes only realised earnings — not unrealised capital gains. Both thresholds are indexed to CPI. We recommend consulting your accountant or financial adviser for specific tax implications.

How does Division 296 interact with the 17% death benefits tax?

These are two separate but cumulative tax problems for high-net-worth SMSF members. Division 296 applies during your lifetime on earnings above the $3 million threshold. The death benefits tax (up to 17% on the taxable component) applies at death when benefits are paid to adult non-dependent children. A large SMSF balance is therefore taxed twice: once during life through Division 296, and again at death. Proper estate planning with testamentary trusts and updated BDBNs can help manage the second layer of tax. We recommend consulting your accountant or financial adviser for specific modelling.

Should I withdraw super to get below the $3 million threshold before 1 July 2026?

This depends on your individual circumstances, including your tax position outside superannuation, the composition of your SMSF assets, and your broader wealth management objectives. In the 2026–27 transitional year, Division 296 is assessed on your TSB at 30 June 2027 only — so you have until that date to reduce your balance if appropriate. From 2027–28 onwards, the higher of your opening and closing TSB is used, limiting the effectiveness of late-year withdrawals. A withdrawal strategy has significant financial and tax implications — we strongly recommend discussing this with your accountant or financial adviser before taking any action.

Do my BDBN and Will need to be updated because of Division 296?

Quite possibly. Division 296 changes the financial calculus of keeping large balances inside super. If your estate plan was drafted before October 2025, it almost certainly does not reflect the new two-tier tax structure, the revised start date of 1 July 2026, or updated strategies for managing the interaction between Division 296 and death benefits tax. At a minimum, your BDBN should be reviewed to ensure it remains valid, and your Will should be reviewed to confirm the testamentary trust provisions remain appropriate. WealthShield Legal recommends a comprehensive review for all clients with SMSF balances above $2.5 million.

What is a recontribution strategy and how does it reduce death benefits tax?

A recontribution strategy involves withdrawing amounts from super (as a tax-free lump sum if you meet a condition of release) and re-contributing them as non-concessional contributions. Because non-concessional contributions form the tax-free component of your super balance, this strategy shifts money from the taxable component (which attracts 17% death benefits tax when paid to adult non-dependent children) to the tax-free component (which passes tax-free to any beneficiary). This is a financial strategy — we strongly recommend discussing it with your accountant or financial adviser. WealthShield Legal can then prepare or update the legal structures to support the strategy.

How does a testamentary trust help in the new Division 296 environment?

A testamentary trust (or superannuation testamentary trust) in your Will can receive superannuation death benefits after they pass through your estate and hold them for the ongoing benefit of your family. While the initial death benefits tax still applies to the taxable component when paid to the estate, once inside the testamentary trust the funds can be invested and income distributed to minor beneficiaries at adult marginal tax rates — creating significant ongoing tax efficiency. In the context of Division 296, funds reinvested outside super through a testamentary trust structure may have a lower ongoing tax burden than remaining inside a large SMSF. This is a complex interaction of tax and legal strategy — we recommend consulting both your legal adviser and accountant.

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