2026-27 Federal Budget & Division 296

What this means for your Self-Managed Super Fund

Two things have changed for SMSFs since the Budget. Division 296 has commenced — it applies from 1 July 2026, and the first affected year is 2026-27, assessed on your total super balance at 30 June 2027. And a measure that was never in the Budget papers at all: from 10 August 2026, SMSFs can no longer borrow to buy residential property. The one-off cost base reset election is still available, and is made in your 2026-27 fund return.

Current as at 9 October 2026. Tax law is changing rapidly following the 2026–27 Budget. Measures marked Before Parliament, Consultation or Announced are not law and may change or not proceed.

Commenced

1 July 2026

Division 296 is law (Royal Assent 13 March 2026). First affected year is 2026-27, assessed on your TSB at 30 June 2027.

Affects you if

TSB > $3M

Total super balance across all funds. Threshold is per individual — couples can have up to $6M combined and be unaffected.

In force since 10 Aug 2026

LRBA ban

New SMSF borrowing is limited to business real property. Residential property — new or established — no longer qualifies. Existing loans grandfathered.

The change that wasn’t in the Budget papers

New SMSF borrowing is limited to business real property

Law — in force since 10 August 2026

This one did not appear in the 2026–27 Budget at all. It was added by Senate amendment as part of the deal that got the tax reform package through, received Royal Assent on 26 June 2026 and commenced after a 45-day transition on 10 August 2026. If you have been planning an SMSF property purchase using a limited recourse borrowing arrangement, this is the single most important thing on this page.

What actually changed

New LRBAs are limited to business real property

From 10 August 2026, an SMSF may only enter a new limited recourse borrowing arrangement to acquire business real property as defined in the Superannuation Industry (Supervision) Act 1993. Residential property — whether newly built or established — no longer qualifies. Nor does any other real property that is not business real property, such as vacant land or property that is not used in a business.

Commercial premises will often meet the business real property definition, but zoning alone does not decide it. The test is about use, and it needs to be checked property by property rather than assumed.

Existing arrangements are grandfathered. An LRBA entered into before 10 August 2026 can continue, and maintaining or refinancing that borrowing remains permitted.

If you were mid-process on 10 August

A contract of sale entered into before 10 August 2026 can proceed to settlement after that date. What does not qualify is having merely established the fund, lodged a loan application, or obtained approval in principle beforehand. If you are in this position, the dates on your contract matter — bring them to us.

Buying residential property in super without borrowing

The ban is on borrowing, not on the asset. An SMSF with sufficient cash can still buy residential property outright, and the fund still sits outside the new negative gearing and CGT rules. What has gone is the ability to gear the purchase.

Commercial and business premises are unaffected

The most common SMSF gearing strategy for our business clients — the fund buying the premises the business operates from, and leasing it back at market rates — still works. Business real property remains available for new LRBAs.

If an SMSF was set up specifically to gear residential property, that plan no longer works

We would rather have this conversation early than after settlement falls over. If you established a fund, or were about to, on the basis of borrowing to buy a residential investment property, the strategy needs to be rebuilt — either around an ungeared purchase, around business real property, or outside super altogether.

Existing residential LRBAs are unaffected and do not need to be unwound.

The new structure

Division 296: three tiers, based on your total super balance

Law — commenced 1 July 2026

Division 296 sits on top of existing super tax. The fund still pays its usual 15% on accumulation-phase earnings. Division 296 adds an additional layer of tax — assessed to you personally — on the proportion of earnings attributable to your balance above each threshold.

Up to $3 million

15%

No change — existing super tax

Standard fund tax of 15% on accumulation-phase earnings, 0% on retirement-phase earnings. No Division 296 applies. Most SMSF members will sit entirely in this tier.

$3M to $10M

30%

15% fund tax + 15% additional Division 296

Division 296 adds an extra 15% on the proportion of fund earnings attributable to your balance above $3 million. Effective rate on that portion: 30%. Both thresholds are CPI-indexed.

Above $10 million

40%

15% fund tax + 25% additional Division 296

For the proportion of your balance over $10 million, the additional Division 296 tax is 25% (rather than 15%), giving an effective tax rate on that portion of 40%.

How it works in practice

Four things you should know about the mechanics

The final version of Division 296 is meaningfully different from the original 2023 proposal. Several of the most concerning elements — the taxing of unrealised gains chief among them — were removed before it became law.

Law Passed and assented. Plan around it.

Before Parliament Introduced, not yet passed.

Consultation Treasury paper or exposure draft only.

Announced Budget announcement. No draft, no paper.

How it works 01

Realised earnings, not unrealised gains

The controversial original proposal taxed unrealised gains — theoretical increases in asset values that hadn’t been sold. That was removed in October 2025.

The legislated version taxes realised earnings — consistent with how tax normally works. Capital gains get the existing 1/3 CGT discount for assets held 12+ months. Carry-forward fund losses still apply.

How it works 02

Assessed to you, not the fund

Division 296 is a personal tax, like Division 293. The fund reports earnings to the ATO, and the ATO assesses the additional tax to you personally.

You can choose to pay the tax personally or have it released from the fund. The choice affects cash flow planning — releasing from the fund reduces your balance, paying personally preserves it.

How it works 03

Tested against your TSB — not the fund balance

The $3 million threshold is tested against your individual Total Super Balance across all of your super accounts — not the SMSF’s total.

An SMSF with two members worth $5M total but split $2.5M each will have neither member caught by Division 296. The reverse applies too — the test is at the individual level.

How it works 04

Thresholds are CPI-indexed

One of the biggest changes from the original proposal: the $3M and $10M thresholds are now indexed to CPI. They’ll rise over time rather than catching more Australians via bracket creep. The $3M threshold moves in $150,000 increments; the $10M threshold in $500,000 increments.

The transitional rule for 2026-27 tests against your balance at 30 June 2027 only. From 2027-28 onwards, you’re caught if either your opening or closing balance exceeds $3M, and the proportion is calculated against the greater of those two balances — making in-year withdrawals largely ineffective as a strategy.

Specific exemptions to be aware of

A few groups are permanently or specifically exempt from Division 296 even where the threshold is exceeded:

Child recipients of death benefit pensions are exempt for any year in which they receive an income stream as a child recipient. Recipients of structured settlement contributions — typically catastrophic injury settlement recipients — are permanently exempt from Division 296. And for the transitional 2026-27 year only, if a member dies during the year, no Division 296 tax applies for that year.

Most SMSF clients won’t fall into any of these categories, but if you receive a structured settlement payment into super, or have a child receiving a death benefit pension, these are worth confirming as part of any planning conversation.

The decision that needs careful thought

The cost base reset election — valued at 30 June 2026, elected in your 2026-27 return

Law

These are two different dates and they are often confused. 30 June 2026 is the valuation date — the market values the reset uses. The election itself is made later, with the fund’s 2026-27 income tax return. The election excludes gains accrued to 30 June 2026 from future Division 296 calculations. But there’s a catch.

Critical decision

It’s all-or-nothing, and it’s irreversible

The election applies at the fund level, not asset-by-asset. If you opt in, every asset has its Division 296 cost base reset to market value at 30 June 2026 — including assets sitting in unrealised loss positions, which would otherwise be preserved.

For funds with mostly gains, opting in is usually the right call. For funds with a mix of gains and losses, the maths needs running carefully. Once made, the election can’t be reversed.

The election is made at fund level and covers every CGT asset the fund held directly at 30 June 2026. On our reading it must be made by the earlier of the date the fund’s 2026-27 return is lodged and that return’s due date — so it is a decision to make before we lodge, not after. Any SMSF can opt in, even funds where no member is currently above $3M, which matters if members are expected to cross the threshold later and the fund holds long-held assets with large unrealised gains.

The reset applies for Division 296 purposes only. Your ordinary CGT cost base is unaffected — the fund still calculates normal capital gains on the original cost base.

We will confirm the exact form and deadline against ATO guidance before we lodge any affected fund. If your balance is near or above $3 million, we would rather run this analysis in the first half of the financial year than in the week before lodgement.

Why this matters even for clients below $3M today

The cost base reset election is available to any SMSF, regardless of current member balances. For clients with growing balances who will eventually cross $3M — particularly those holding long-held assets with significant unrealised gains — opting in now protects the historic gain from future Division 296 tax.

The cost is the loss of any unrealised losses at 30 June 2026, which also get reset. For funds with strong overall gains, this is usually a worthwhile trade-off.

From this Budget specifically

Where the Budget actually helps SMSFs

The Budget’s most disruptive measures — the negative gearing limits and the CGT discount removal, both now law — leave complying superannuation funds untouched, as does the proposed trust minimum tax. SMSFs become relatively more attractive than they were before. That gain is real, but it is now partly offset by the loss of residential gearing.

Law

Negative gearing limits don’t reach SMSFs

Widely-held trusts and complying superannuation funds, including SMSFs, are excluded from the new negative gearing restrictions. Property held in your SMSF is not caught by the loss quarantining rules that start on 1 July 2027, regardless of when it was purchased. Note the practical limit though: from 10 August 2026 you can no longer borrow to buy residential property in the fund in the first place.

Law

33⅓% CGT discount preserved

Treasury confirmed in the Budget Lockup that complying super funds, including SMSFs, will continue to receive the 33⅓% CGT discount. The effective rate on discounted gains stays at 10% in accumulation phase, 0% in pension phase.

Consultation

Trust minimum tax isn’t proposed to apply

The proposed 30% minimum tax on discretionary trusts is not proposed to apply to complying super funds, including SMSFs — the exposure draft released on 3 September 2026 confirms complying superannuation entities are excluded. Worth keeping in proportion: it is still draft law, with no bill introduced and a proposed start of 1 July 2028.

This makes SMSFs comparatively more attractive — but doesn’t change the fundamentals

The Budget changes the relative attractiveness of SMSFs versus personal-name holdings, particularly for property and CGT-bearing investments. That’s not the same as saying everyone should start an SMSF.

SMSFs still have the same underlying requirements they’ve always had — sufficient balance to justify costs, sole purpose test, liquidity for pension phase, diversification (especially for property), trustee responsibilities. The tax differential helps, but doesn’t fix any of these.

Worked example

Division 296 in practice

A typical SMSF member with a $4 million balance. Showing how Division 296 actually calculates out in the first year of operation.

Megan — SMSF member with a $4M balance

2026-27 income year: $200,000 in realised fund earnings

Megan is 58. Her Total Super Balance at 30 June 2027 is $4 million. The fund has $200,000 in realised earnings for the year (interest, dividends, realised gains net of the 1/3 CGT discount). Her personal share of those earnings is allocated based on her proportion of the fund.

Megan’s realised earnings share $200,000

Proportion of TSB above $3M ($1M / $4M) 25%

Division 296 attributable earnings ($200k × 25%) $50,000

Additional Division 296 tax (15% × $50,000) $7,500

Megan’s Division 296 tax liability for 2026-27: $7,500. This is in addition to the $30,000 the fund already paid in regular 15% tax on the $200,000 of earnings (a portion of which relates to retirement phase and is tax-free at the fund level). Megan can either pay the $7,500 personally or have it released from her SMSF balance. If her balance stays around $4M and earnings stay similar, her annual Division 296 liability stays in the same range.

Key dates

The Division 296 and LRBA timeline

Law

Everything on this timeline is legislated. The two dates that still require a decision from you are the cost base reset election and, if you were mid-purchase in August, your contract date.

13 March 2026

Already law. Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 received Royal Assent. Division 296 is no longer a Budget announcement — it’s legislation.

26 June 2026

Tax reform package assented. Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026) receives Royal Assent, carrying the Senate amendment that limits new LRBAs to business real property.

30 June 2026

Cost base reset valuation date. Asset values at this date set the Division 296 starting cost base if your fund elects to opt in. This is the valuation date — not the election deadline.

1 July 2026

Division 296 commences. 2026-27 is the first affected income year. Fund-level reporting starts capturing the data needed for Division 296 calculations.

10 August 2026

LRBA restriction takes effect. New SMSF borrowing limited to business real property. Contracts of sale entered before this date can still settle. Existing arrangements and their refinancing are grandfathered.

30 June 2027

First measurement date — the live planning deadline. Member TSB at this date determines whether Division 296 applies for 2026-27. Transitional rule: closing balance only. This is the date to plan towards, not 30 June 2026.

Lodgement of the 2026-27 SMSF return

Cost base reset election deadline. The election to reset to 30 June 2026 market values must be made by the earlier of the date that return is lodged and its due date. It is irrevocable, applies to every directly-held asset, and a missed deadline means no relief. We will confirm the approved form against ATO guidance before lodging.

From 2027-28

Higher of opening / closing balance. Test changes from closing-balance-only to the greater of the start or end of year balance — making in-year withdrawals less effective as a strategy.

What you should do

Practical steps for each situation

The right action depends on where your balance sits today and where you expect it to be when Division 296 starts.

If you were about to borrow in your SMSF to buy residential property Stop

Since 10 August 2026 this is no longer permitted for new arrangements. If you have a contract of sale dated before 10 August you may still be able to settle — send us the contract. Otherwise the strategy needs rebuilding around an ungeared purchase, business real property, or a structure outside super.

If your TSB is near or above $3M This year

Two things. Your 2026-27 Division 296 position is determined by your total super balance at 30 June 2027, so there is a planning year in front of you. And the cost base reset election has to be decided before we lodge the 2026-27 return — that analysis is better done early in the year than in the week before lodgement.

If your TSB is $1.5M–$3M and growing

You won’t pay Division 296 yet, but you should still consider the cost base reset. It uses 30 June 2026 market values, is decided with the 2026-27 return, and any fund can opt in regardless of current member balances. It protects the historic gain from future Division 296 tax — at the cost of resetting unrealised losses too.

If you have a higher-balance spouse

Division 296 applies to individual TSBs. Spouse contribution splitting, recontribution strategies and similar approaches may reduce the higher member’s balance without removing money from the super system. For 2026-27 the balance that counts is the one at 30 June 2027 — so there is still time to act, but not indefinitely. From 2027-28 the test looks at both opening and closing balances, which makes late-in-year adjustments far less effective.

If you’re close to retirement and above $3M

Pension-phase earnings are still tax-free at the fund level, but they’re included in Division 296. The decision to start a pension may interact with Division 296 timing in ways worth modelling.

If you’re considering buying property in your SMSF

SMSFs sit outside the new negative gearing limits and the CGT indexation changes, which makes SMSF property comparatively more attractive than personal-name property from 1 July 2027. But since 10 August 2026 a residential purchase must be ungeared. Business real property can still be geared. The fundamentals — balance, liquidity, diversification, sole purpose — are unchanged.

If you don’t have an SMSF but are considering one

The Budget’s SMSF carve-outs improve the relative case for SMSFs. But the establishment costs, ongoing compliance burden, trustee responsibilities and minimum-balance considerations haven’t changed. Worth a conversation before deciding.

Don’t withdraw funds in haste

Some affected members will be tempted to withdraw above-$3M balances before Division 296 starts. For most clients, this isn’t worth doing. The Division 296 tax is meaningful but not punitive, and withdrawn funds lose access to the broader super tax structure (15% fund tax, eventual 0% pension phase, no Division 296 application). Run the numbers before acting — the answer often favours staying in super.

Mastin Harris Family Wealth Protection

Your super is part of your estate plan

SMSFs aren’t covered by your Will. Death benefit decisions, binding nominations, reversionary pensions and the interaction with testamentary trusts all matter more — not less — when Division 296 changes the tax cost of large balances. Estate planning and super planning need to be done together, not separately.

Does your super follow your Will? →

Other Budget changes that might apply to you

SMSF members usually fit more than one of these

Most SMSF clients also have personal investments or run a business. Other Budget changes interact with your super position in important ways.

If this applies

I own (or am buying) an investment property

Now law. Losses quarantined from 1 July 2027, but property held at 12 May 2026 is grandfathered — outside super.

Read about property changes If this applies

I hold shares or other investments

Now law from 1 July 2027. The 50% discount is replaced with CPI indexation and a 30% minimum tax.

Read about CGT changes If this applies

I run a business through a trust

A proposed 30% minimum tax on discretionary trusts from 1 July 2028. Exposure draft released 3 September 2026 — no bill.

Read about trust changes If this applies

I run a small business

Permanent $20,000 write-off and loss carry-back are law (Royal Assent 26 August 2026). PAYG changes announced only.

Read about small business changes If this applies

I’m a PAYG employee

All law: the rate cut on the $18,201–$45,000 bracket, the $1,000 instant deduction and the $250 offset.

Read about employee changes If this applies

I’m retired or close to it

The private health rebate cut for over-65s is a bill before Parliament, not law. CGT changes and Division 296 are law.

Read about retirement changes

Keep your SMSF compliant and aligned with your broader plans.

Division 296 is a meaningful change, but the planning options — cost base reset election, contribution splitting, drawdown timing, structure review — need to be tailored to your specific position, and the balance that counts for 2026-27 is the one at 30 June 2027. If the residential borrowing ban has interrupted a purchase you had underway, bring us the contract.

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