Division 296 super tax, what actually survived and what it means for SMSF property

Division 296 was the two-year headache that dominated every SMSF conversation. Investors were told the government would tax unrealised gains on super balances above $3m at 15% on top of existing super tax. It passed the Senate in March 2026 with the unrealised-gains component dropped, a second indexed threshold added, and a start date of 1 July 2026. Most of the online commentary you’ll find is still written against the version that didn’t pass.

What actually became law

• Two thresholds: $3m total superannuation balance (TSB) taxed at an additional 15%, and $10m TSB at an additional 40%.
• Both thresholds are indexed to CPI, in $150,000 (lower) and $500,000 (upper) increments.
• Only realised earnings are taxable, not unrealised gains. This is the biggest reversal from the original draft.
• Commencement: 1 July 2026. First affected FY: 2026–27.

Why this matters differently for SMSF property

SMSF property is a lumpy, illiquid asset. Under the original draft, a $2.1m property held in a $3.2m fund could have triggered tax on paper gains you couldn’t actually pay, forcing sales or contributions. Removing the unrealised-gains component means SMSF property investors can hold through a growth cycle without engineering a liquidity event to fund a phantom tax. That’s a real strategic win for long-hold SMSF property, whether it is held unencumbered or under a grandfathered LRBA.

Where the pain still sits

• The extra tax stacks on top of the standard 15% super earnings tax. Above $3m, the effective rate on realised rental income is 30%. Above $10m, it’s 55% before franking.
• Once you cross a threshold, only the proportion of balance above it is affected. A $3.4m fund is taxed extra on the $400k over, not the whole balance.
• The 30 June valuation of the property (and any LRBA equity) determines whether you cross the threshold. Growth still matters, just for the crossing, not the tax base.

Three things SMSF trustees should do this financial year

• Get a valuation now. A defensible 30 June 2026 valuation for the fund’s property is the anchor for every subsequent Div 296 calculation. Retrospective revaluations are how audits go sideways.
• Model your crossing year. If your fund is $2.4m today and the property is compounding at 5%, you’ll cross the (indexed) threshold in year 3–4. Plan the transition, don’t react to it.
• Reconsider contribution strategy. Extra concessional contributions still help most trustees, but past $2.7m TSB the tax drag on the incremental dollar changes. Model it, don’t default it.