Division 296 Tax & SMSF Property

As of May 2026, Division 296 is law in Australia. It applies from the 2026-27 financial year, starting 1 July 2026, with the first key balance test on 30 June 2027. SMSF trustees should check the final ATO and Treasury guidance before acting, because administration details and regulations still matter.

Division 296 tax can affect individuals whose total superannuation balance is above $3 million at the relevant testing point and who have positive taxable superannuation earnings. All super interests can count, including SMSF property, accumulation balances and pension phase balances.

Under the final 2026 law, Division 296 does not tax unrealised capital gains. It applies to realised earnings, such as rent and realised capital gains, to the extent they are linked to balances above the relevant thresholds. Property valuations still matter because they affect total superannuation balance testing.

The market value of SMSF property forms part of a member's total superannuation balance. A higher property valuation may push a member above the $3 million or $10 million threshold, even if the property has not been sold. That can affect whether realised fund earnings are exposed to Division 296 tax.

If an SMSF property is sold after Division 296 starts, any realised capital gain may form part of taxable superannuation earnings. The tax impact depends on the member's total super balance, the cost base, the timing of sale, available concessions and transitional rules. This needs qualified tax advice before the sale is committed.

Division 296 tax is assessed to the individual, not directly to the SMSF. A member may generally have options to pay personally or elect for an amount to be released from super, subject to the final ATO process and fund rules. SMSFs holding property need to review liquidity before tax becomes payable.

Not without detailed modelling. Selling SMSF property can trigger capital gains tax, transaction costs, lost rental income and changes to the fund's long-term strategy. A sale may reduce Division 296 exposure in some cases, but it may also create a worse after-tax result.

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