Why the super tax changes will reinforce the strategic case for SMSFs

When Division 296 passed into law in March 2026, the headline reaction was predictable: a new tax on earnings attributable to superannuation balances above $3 million was framed as an assault on wealthy members.

For planners, the immediate question became whether to reduce super balances, restructure contributions, or move assets out of the system entirely. Those are legitimate questions, but a more useful analysis looks not just at what Div 296 does to super, and instead considers what the broader 2026 reform package has done to the alternatives. That comparison produces a more nuanced picture, one in which SMSFs may actually occupy a stronger relative position than before.

What Div 296 actually does

Under Div 296, if a member’s total superannuation balance (TSB) exceeds $3 million, an additional 15 per cent tax applies to the proportion of earnings attributable to the balance above that threshold. A further 10 per cent applies to the portion above $10 million. Both thresholds are indexed to CPI. From FY28 onwards, the threshold test uses the greater of a member’s opening or closing balance for the year, an integrity measure preventing avoidance by drawing down before 30 June. The tax applies to realised earnings only, is levied on the individual rather than the fund, and members may elect to have the liability released from their super.

For members materially above $3 million the numbers warrant careful modelling, but Div 296 does not, of itself, destroy the case for SMSFs. The answer lies in what happened simultaneously outside the super system.

The alternatives got more expensive too

The FY27 Federal Budget introduced the most significant changes to Australia’s personal investment tax framework in decades. Two measures in particular reshape the comparison with super. First, negative gearing for established residential property will be restricted from 1 July 2027.

Losses on properties acquired after 7:30pm AEST on 12 May 2026 will be quarantined against residential property income only, although they cannot offset salary or other income, but excess losses may be carried forward. Properties held at budget night are grandfathered. Superannuation funds, including SMSFs, are expressly excluded from these changes.

Second, the 50 per cent CGT discount for individuals, trusts and partnerships will be replaced by cost-base indexation from 1 July 2027, with a minimum 30 per cent tax on capital gains, which reverts to the indexation approach that applied before the Howard government introduced the discount in 1999. A separate 30 per cent minimum tax on discretionary trust distributions is proposed from 1 July 2028. Neither measure is yet law.

The carve-out that changes everything for SMSFs

Here is the point that has received insufficient attention: the CGT changes do not apply to superannuation funds. The budget factsheet confirms the replacement of the 50 per cent discount – and the 30 per cent minimum tax – applies only to individuals, trusts and partnerships. SMSFs retain the existing one-third CGT discount on assets held for more than 12 months.

The structural divergence is material. An individual holding assets in personal name will face a minimum 30 per cent tax on real gains after 1 July 2027. The same investor inside a complying SMSF pays 10 per cent in accumulation (but zero in pension phase) subject to any excess tax for balances above $3 million. For long-duration assets, the relative SMSF advantage may widen.

What this means for structural comparisons

The pre-2026 benchmark – 50 per cent CGT discount in personal name versus one-third in SMSF, with negative gearing on both sides – no longer applies to new investments. Assuming the announced reforms proceed as proposed:

Inside SMSF: 15 per cent tax on income; one-third CGT discount retained (10 per cent effective rate on long-held assets, zero in pension phase); Div 296 applies above $3 million TSB.

Outside SMSF, personal name (established property post-Budget): Marginal rates up to 47 per cent; losses quarantined; cost-base indexation and 30 per cent minimum tax on gains from 1 July 2027.

Outside SMSF, discretionary trust: Similar CGT treatment from 1 July 2027; 30 per cent minimum distribution tax from 1 July 2028.

Across most scenarios involving long-duration capital assets, the SMSF column produces a superior after-tax outcome, even with Division 296 in play.

What planners could consider now

SMSFs remain the most flexible structure for direct ownership and precise tax management. The ATO confirms complying SMSFs are entitled to the one-third CGT discount under section 115-100 of the Income Tax Assessment Act 1997, applied before the 15 per cent fund tax rate. Unlike pooled funds (where CGT outcomes are socialised across the membership) an SMSF captures the exact tax position of directly held assets. The 2026 reform package rewards precisely this kind of active management.

None of this is an argument to ignore Division 296. For affected clients, structural modelling is essential, and comparisons must be stated as contingent on the announced measures proceeding as proposed. But planners benchmarking SMSF holdings against pre-budget alternatives are using a baseline that no longer exists.

The reform package was designed to make large superannuation balances less attractive. In some respects, it has succeeded. But in raising the cost of holding assets outside super while preserving the one-third CGT discount for superannuation funds, it has reinforced the core proposition of the self-managed structure: for sophisticated investors with long-duration, directly held assets, there remains a compelling case for the SMSF.

Arthur Marusevich is a financial services lawyer with expertise in superannuation and investments.