Tax planning has never been so crucial for SMSF trustees having significant super balances. Under the provisions of Division 296, from 1 July 2026, a tax will be imposed on individuals having super balances of over $3 million.
The application of such regulations might result in high taxation. For instance, SMSF members having balances resulting from investments or even property might face high taxation under the regulations. Planning is essential for understanding one’s risk and making proper decisions at the end of each financial year.
This Blog outlines seven effective division 296 tax strategies that SMSF trustees may use.
What Is Division 296 Tax?
Division 296 is an additional tax that applies to individuals with more than $3 million in total superannuation at the end of a financial year.
For the 2026–27 financial year, the additional tax applies to the proportion of certain superannuation earnings associated with the balance above $3 million. A higher rate applies to the portion above $10 million.
Importantly, Division 296 is an individual tax liability. It is not simply another tax paid directly by the SMSF.
The calculation considers changes in a person’s total superannuation balance and certain contributions and withdrawals during the year. This means trustees need to look beyond the SMSF’s annual investment performance and consider their overall superannuation position.
Why Should SMSF Trustees Start Planning Early?
A large super balance does not necessarily mean a Division 296 liability can be avoided. However, early planning may help trustees understand how their investment decisions, pension arrangements, contributions and withdrawals could affect their position.
Trustees should also avoid making decisions purely for tax reasons. SMSF investments and retirement strategies should continue to reflect the fund’s investment strategy, risk profile and long-term objectives.
Working with experienced smsf accountants Perth can help trustees model different scenarios before making major changes to their fund.
7 Division 296 Tax Strategies to Consider
1. Review Your Total Superannuation Balance
The first step is understanding exactly where your superannuation balance stands.
Your total superannuation balance can include interests held in:
- An SMSF
- Industry super funds
- Retail super funds
- Other regulated superannuation arrangements
- Certain pension interests
If you have superannuation with more than one provider, looking only at your SMSF balance may give you an incomplete picture.
For example, an SMSF balance of $2.7 million might appear to be below the threshold. However, if the member also has $500,000 in another super fund, their overall position could be above $3 million.
Regularly reviewing your total superannuation balance is therefore one of the most important starting points for Division 296 planning.
2. Review the Cost Base of SMSF Assets
Asset values can have a major impact on the calculation, particularly where an SMSF holds assets that have increased substantially in value.
Property and shares may have generated significant capital growth over several years. Before selling or restructuring investments, trustees should understand how their current market values and tax cost bases interact.
The introduction of Division 296 also makes it important to consider the available CGT cost-base reset rules where applicable.
A reset election may provide an opportunity to adjust the tax cost base of certain assets for future purposes. However, it is not something trustees should elect without proper modelling because the decision can have long-term consequences.
A detailed review of smsf capital gains tax should therefore form part of any broader Division 296 planning exercise.
3. Reassess Your Investment Portfolio
Investment performance is another area trustees should review.
An SMSF portfolio may contain a mixture of:
- Australian shares
- International shares
- Managed funds
- ETFs
- Commercial property
- Residential property
- Cash
- Term deposits
- Other permitted investments
Strong investment growth can be positive for retirement savings, but it can also increase the member’s super balance.
This does not mean trustees should automatically move into lower-return investments. Investment decisions should always be based on the fund’s objectives, risk tolerance, liquidity requirements and investment strategy.
Instead, trustees should regularly assess whether the portfolio remains appropriate and whether its risk and growth profile are consistent with their retirement plans.
4. Review Contributions and Withdrawals
Contributions and withdrawals can affect the calculation of your superannuation position.
For 2026–27, the concessional contribution cap is $32,500, while the general non-concessional contribution cap is $130,000, subject to the applicable rules and eligibility requirements.
Trustees should review planned contributions carefully, particularly when a member is already approaching or exceeding the $3 million threshold.
At the same time, legitimate withdrawals may form part of a broader retirement strategy. However, withdrawing money from super purely to reduce a potential tax liability may not always be the best financial decision.
Before making significant contributions or withdrawals, consider:
- Your retirement income requirements
- Contribution eligibility
- Contribution caps
- Pension arrangements
- Investment objectives
- Personal tax consequences
- Long-term estate planning
Your smsf tax return and annual records can also provide useful information when reviewing the fund’s historical position.
5. Review Your Pension Strategy
For members approaching or already in retirement, pension planning can become particularly important.
Account-based pensions can provide a regular income stream while potentially changing the way retirement savings are structured.
However, pension arrangements need to be considered alongside the transfer balance rules and the member’s overall superannuation position.
Trustees should review whether their current pension strategy remains appropriate rather than assuming that moving more money into pension phase will automatically solve a Division 296 issue.
For members looking for professional guidance, reviewing an smsf pension plan in perth can help ensure the retirement income strategy is aligned with the member’s broader financial objectives.
6. Maintain Sufficient Liquidity
Tax planning should not focus only on reducing the potential liability. Trustees also need to consider how a liability could actually be paid.
This is particularly important where an SMSF has a large proportion of its wealth invested in property or other relatively illiquid assets.
For example, an SMSF may have substantial wealth in a commercial property but limited cash available. If a member later faces a personal tax liability associated with Division 296, the lack of accessible funds could create financial pressure.
Maintaining an appropriate level of liquidity can provide greater flexibility.
Trustees should regularly consider:
- Cash reserves
- Expected pension payments
- Tax obligations
- Investment expenses
- Loan commitments
- Potential asset sales
- Future contribution levels
Liquidity planning should be part of the fund’s overall investment strategy rather than an afterthought.
7. Keep Records and Review Your Strategy Annually
Good record keeping becomes even more important when dealing with complex superannuation rules.
Trustees should retain accurate records relating to:
- Asset valuations
- Contributions
- Pension payments
- Investment transactions
- Cost bases
- Member balances
- Trust distributions where relevant
- Investment strategy reviews
- Major fund decisions
Regular reviews can also help identify changes before they become larger problems.
Trustees should monitor relevant smsf compliance udates and review whether legislative changes could affect their fund.
It is also worth checking for smsf tax return changes each year, particularly where the SMSF has complex investments, pensions or members with substantial balances.
Should You Sell Assets to Reduce Division 296 Exposure?
Selling an investment simply because its value has increased is not necessarily the right answer.
For example, an SMSF may own a commercial property that has delivered strong long-term returns. Selling it could create capital gains tax consequences, transaction costs and potentially affect the fund’s investment strategy.
Instead of making decisions based solely on the Division 296 threshold, trustees should consider the complete financial picture.
Questions to ask include:
- Does the asset still fit the investment strategy?
- Is the expected future return attractive?
- Would selling trigger CGT?
- Is the SMSF sufficiently diversified?
- Does the fund need additional liquidity?
- How would the sale affect retirement income?
- Are there better investment alternatives?
Tax is one consideration, not the entire investment decision.
Can Division 296 Tax Be Completely Avoided?
There is no universal strategy that guarantees a member will avoid Division 296 tax.
The rules depend on individual circumstances, including the person’s total superannuation balance, investment performance, contributions, withdrawals and other relevant factors.
Some strategies may reduce future exposure, while others may simply help trustees manage the consequences more effectively.
This is why professional advice and forward planning are particularly important for members with substantial superannuation balances.
Common Mistakes SMSF Trustees Should Avoid
- Making Decisions Without Looking at All Super Accounts : Only reviewing the SMSF balance may result in an inaccurate assessment of the member’s overall position.
- Selling Investments Too Quickly : Selling a growth asset purely because it may contribute to a higher balance can create other tax and investment consequences.
- Ignoring Liquidity : An SMSF with significant property holdings may have plenty of wealth but insufficient readily available cash.
- Treating Division 296 as an SMSF Tax : The liability is associated with the individual member rather than simply being another tax expense of the SMSF.
- Waiting Until Tax Time : By the time the annual return is prepared, some planning opportunities may already have passed.
How Professional SMSF Advice Can Help
Division 296 planning can involve superannuation law, taxation, investment decisions, pension arrangements and long-term retirement planning.
Professional smsf management services in perth can help trustees maintain accurate records, monitor compliance obligations and keep the fund’s administration organised.
An adviser can also help model different scenarios before trustees make major decisions.
For example, a trustee considering whether to sell an investment, make an additional contribution or change a pension arrangement may benefit from comparing the potential tax and investment outcomes first.
Final Thoughts
However, for SMSF members that have large amounts saved in their accounts, Division 296 presents yet another dimension for their tax and retirement planning.
Some of the most efficient divisions 296 tax approaches are not all about making one significant change but rather about keeping track of super balance, performance of investments, cost base of assets, contribution levels, pension plans, and liquidity.
SMSF trustees should stay updated on legislative changes and always ensure that the information on the record is up-to-date.