19/01/2026
An analysis of the Submissions by Industry groups to the Government's Revised proposed changes to Division 296 Tax legislation highlights a number of hurdles, traps and inequities.
From the SMSF Association (only key points mentioned here and I have added links to the full submission)
TSB integrity measure
There will be various situations in which the proposed use of the greater of the TSB opening and closing values will create potentially unintended consequences. For example, members suffering
losses outside of their control (e.g. Shield and First Guardian) would have their Division 296 tax liability calculated based on balances which have simply disappeared.
In addition, post 1 July 2027, an individual who has a temporary spike in their TSB at the “wrong” time (i.e. toward the end of the financial year) will potentially be penalised for that twice
(i.e. the year in which the spike occurs and the following year).
Deceased members
The potential imposition of Division 296 tax on a deceased member’s interest gives rise to numerous practical complications.
For instance, in scenarios where the beneficiaries of the superannuation death benefit and the beneficiaries of the estate are not the same individuals, the beneficiaries of a deceased estate may incur a Division 296 tax liability even though they were not the beneficiaries of the superannuation death benefit – and have no recourse to the superannuation death benefit.
Other complexities will also arise as a Division 296 assessment notice may not be received by the executors of a deceased estate until 12 or more months after the end of the income year in which the member died.
Given most estates are finalised in 6 months or less, and the Division 296 tax assessment will be issued much later, many Division 296 tax assessments will arrive after the estate has been finalised and estate assets have been distributed to the deceased members’ beneficiaries. In these situations, it is unclear what Treasury’s expectations are in relation to collection of the Division 296 Tax liability.
Franking credits and tax offsets
Paragraph 1.70 of the Exposure Draft Explanatory Materials refers to the fund’s relevant taxable income as including grossed-up franking credits and foreign income tax offsets as they are
considered a form of ‘in kind earnings’.
We note the intent of this policy, as outlined in the summary and detailed explanation of the new law in the Exposure Draft Explanatory Materials, is to impose a tax at a rate of 15 per cent for
superannuation earnings corresponding to the individual’s TSB that exceeds the large superannuation balance threshold and 25 per cent for superannuation earnings corresponding to
the individual’s TSB that exceeds the very large superannuation balance threshold.
However, including the grossed-up amount of dividends received (i.e. the dividend received plus the franking credit) and foreign tax offsets as earnings inflates the true value of “actual” earn
full submission herehttps://www.smsfassociation.com/wp-content/uploads/2026/01/SMSFA_Submission-Treasury-Laws-Amendment-Better-Targeted-Superannuation-Concessions-Bill-2025.pdf
From the IFPA:
In its submission, IFPA argues the proposal in its current form still has flaws that will produce inequitable and unworkable outcomes if legislated.
Key concerns raised in the submission include:
• Only closing total superannuation balance (TSB) should be used for Division 296 purposes. The “higher of two balances” approach produces unfair outcomes by taxing notional balances rather than actual circumstance and must be adjusted to account for losses, insurance proceeds, excess contributions and other events outside a member’s control.
• Death-related outcomes are unworkable and inequitable. The inclusion of members in the year they die can impose tax after assets have been distributed and shift liabilities to estates and beneficiaries. A clear exemption where a member dies during an income year is required.
• The cost base reset is fundamentally flawed. The all-or-nothing election, lack of portability, exclusion of indirect assets and failure to properly exclude pre-30 June 2026 gains undermine the policy intent and risk taxing historical gains, particularly for larger balances.
• Administrative settings will undermine implementation. Variable SMSF tax return due dates may impact cost base election timing, along with misaligned payment and release authority timeframes, and unresolved earnings attribution issues all create unnecessary compliance risk and uncertainty, requiring legislative amendment and clear guidance.
Further details regarding these issues and our recommended amendments can be found in our submission here.
Full submission here https://ifpa.com.au/our-submission-on-division-296-tax-draft-legislation
