Over the past month, Division 296 has moved quickly from policy announcement to draft legislation, consultation and early engagement with industry.
TAG has been actively involved throughout this process. We lodged four formal submissions on the draft legislation and, following our initial submission in early January, were invited to meet directly with Treasury on Friday 16th of January, to walk through our observations and practical concerns in detail.
Direct engagement of this nature is relatively rare and reflects Treasury’s willingness to test how the proposed rules will operate in practice, not just in theory.
This update is intended to share where those discussions landed, where TAG considers the key risks and opportunities now sit.
Franking credits: issue raised, policy position confirmed
One of TAG’s submissions addressed the treatment of franking credits under Division 296 and the departure from the original policy narrative of taxing a member’s economic benefit. With the use of a case study example the difference between the two approaches as shown and acknowledged that they did result in a different outcome to the member.
Having tested this issue through submissions and direct engagement, TAG has accepted Treasury’s position that the outcome is consistent with the policy intent.
Our focus has now shifted to areas where design choices and regulatory settings are still evolving and where practical refinements can materially improve outcomes for trustees, advisers and administrators.
Death benefits and reversionary pensions: a real design issue
One of the most constructive parts of the Treasury discussion centred on the interaction between Division 296 and death benefit outcomes, particularly where reversionary pensions are involved.
As currently drafted, the use of a “greater of opening or closing balance” test can create unintended outcomes in the year of death, including:
- exposure for both spouses in the same year
- application of higher Division 296 proportions to earnings generated while a surviving spouse was below the $3 million threshold
This is not a question of policy intent. It is a measurement and timing issue, and one that existing superannuation concepts already address elsewhere, most notably through the Transfer Balance Cap 12 month grace period.
TAG’s view is that aligning Division 296 treatment more closely with these established principles would significantly reduce unintended outcomes without undermining the intended outcomes. Treasury acknowledged this issue and requested worked examples to test the interaction further. Here is the example and how this rule change is demonstrated:
Example
Kate who has a balance of $2mill, would be under the $3mill limit for 11.9 months of the year, and then receive a $2mill reversionary pension from Ben in the month of June. She will be assessed for the entire year on 25% of her superannuation earnings (as at the end of the year her super balance is now $4 mill) at the additional 15% tax rate.
Her deceased spouse had a balance of $4mill at the start of the year, so he would have a proportion of his earnings up to date of death taxed at an additional 15% on 25% of his balance for the year as well. So in the one financial year, both Kate and Ben will be assessed on 25% of both their Superannuation earnings, whereas without Ben passing away, it would have only been Ben being assessed for 25% of his earnings in this same year.
This remains an area where refinement is both possible and desirable.
CGT cost base reset: no carry-forward losses
TAG also raised concerns regarding the CGT cost base reset election for Division 296 purposes, specifically the explicit denial of carry-forward capital losses for funds that make the election.
While the reset mechanism itself is logical, the inability to carry forward losses represents a clear departure from core CGT principles and creates a structural disadvantage for trustees who elect to follow the intended pathway.
Importantly, this is not a theoretical issue. It affects real decision-making, risk management and long-term outcomes for SMSFs, particularly in volatile markets.
Treasury acknowledged that this aspect of the rules has not been fully tested in practice and indicated it would be taken away for further consideration. TAG considers this one of the clearest areas where further refinement is warranted.
Actuarial certificates: regulation design matters
The final area of focus was the proposed role of actuarial certificates under Division 296.
TAG’s concern is not with integrity, but with how integrity is achieved. A blanket actuarial requirement risks duplicating work already performed by:
- specialist SMSF software
- accountants
- auditors operating under existing SIS obligations
TAG proposed a more targeted, practical approach through the regulations, including:
- recognising specialist SMSF software capable of robust member-level earnings calculations
- avoiding unnecessary additional cost where systems and processes already deliver fair and reasonable outcomes
Treasury was receptive to this line of thinking and acknowledged the importance of ensuring the regulations do not impose a blunt, one-size-fits-all solution. This is an area where early engagement with software providers and industry participants is likely to be critical.
What this means for advisers and accountants
Division 296 is no longer abstract. It is becoming part of the annual compliance and advisory rhythm for SMSFs and high-balance superannuation clients.
The key takeaway from TAG’s engagement with Treasury is this:
The tax itself is only part of the story. The real challenge (and opportunity) lies in how earnings are measured, allocated, reported and explained over time.
For accountants and advisers, this reinforces the importance of:
- robust systems and processes
- clear client communication
- early strategic thinking rather than reactive decisions
TAG’s ongoing role
TAG will continue to engage constructively with Treasury, industry bodies and software providers as Division 296 progresses from legislation to regulation and implementation.
We are also incorporating these insights into our education and advisory work, including:
- upcoming Division 296 training day with Institute of Financial Professionals Australia (save the date – 24 April 2026)
- TAG’s own Super and Tax Strategies Day (save the date – 21 July 2026)
Our objective remains consistent: to support better long-term outcomes for clients, stronger collaboration with the accounting profession, and practical, workable solutions as the system evolves.
If you would like to discuss how Division 296 may affect your clients or your practice, we’re always happy to have a practical, no-pressure conversation. Email us or call us on 03 9886 0800.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2026. Please do not reproduce without the expressed written consent of the author.