Division 296 Still Taxes Unrealised Capital Gains – Here’s What Every SMSF Trustee Needs to Know

The Division 296 regulations are now in force, but one question continues to dominate discussions among SMSF trustees and advisers:

Does Division 296 still tax unrealised capital gains?

The short answer is yes.

Despite the release of the supporting regulations on 19 June 2026, nothing has changed regarding one of the most controversial aspects of the legislation—unrealised capital gains remain part of the Division 296 earnings calculation.

What is Division 296?

Division 296 introduces an additional 15% tax on earnings attributable to the portion of a member’s Total Superannuation Balance (TSB) that exceeds $3 million.

Importantly, the tax is assessed at the member level, not the fund level.

While the new regulations prescribe how earnings are attributed between members and how certain super interests are valued, they do not change the way Division 296 earnings are calculated.

Why Are Unrealised Capital Gains Included?

Unlike traditional capital gains tax, which generally applies when an asset is sold, Division 296 measures earnings using changes in a member’s Total Superannuation Balance over the financial year.

In simple terms, the calculation starts with:

Division 296 Earnings = Closing TSB − Opening TSB + Withdrawals − Contributions

This means a member’s earnings may include increases in asset values—even if those assets have never been sold.

As a result, Division 296 can capture:

• ✅ Unrealised capital gains
• ✅ Realised capital gains
• ✅ Rental income
• ✅ Interest
• ✅ Dividends
• ✅ Other investment earnings

Example – Investment Property

Imagine your SMSF owns a commercial property.

30 June 2026

Property value: $4.0 million

30 June 2027

Property value: $4.5 million

The property has not been sold, and there were:

• No contributions
• No withdrawals
• No rental income (for simplicity)

Although no cash has been received, the property’s market value has increased by $500,000.

That increase forms part of the member’s Division 296 earnings because their Total Superannuation Balance has increased.

If the member’s balance exceeds $3 million, a proportion of that $500,000 increase may be subject to the additional 15% Division 296 tax.

Why This Matters for SMSFs

Many SMSFs hold assets that are not easily converted into cash, including:

• Commercial property
• Residential property
• Farms
• Business real estate
• Private companies
• Unit trusts

These assets can experience significant increases in value over time.

Under Division 296, trustees could potentially face an additional tax liability before any asset has been sold and before any cash has been generated.

This has become one of the most debated aspects of the legislation, particularly for SMSFs with illiquid investments.

Do the New Regulations Change This?

No.

The Income Tax Assessment (1997 Act) Amendment (Building a Stronger and Fairer Super System and Other Measures) Regulations 2026, effective 19 June 2026, mainly deal with:

• How Division 296 earnings are attributed between members
• Valuation methods for defined benefit interests
• Family law payment split adjustments
• Updated actuarial assumptions

They do not remove unrealised capital gains from the Division 296 calculation.

What Should SMSF Trustees Consider?

If your super balance is approaching or exceeds $3 million, now is an appropriate time to review your strategy.

Areas worth discussing with your adviser include:

• Whether your investment mix remains appropriate
• Cash flow to meet future tax liabilities
• Valuation methodologies for fund assets
• Pension strategies
• Contribution planning
• Estate planning considerations

Every SMSF is different, and planning opportunities will depend on your individual circumstances.

The Bottom Line

Yes—Division 296 still includes unrealised capital gains.

Although the recently released regulations provide more detail on how the tax operates, they do not change the fundamental calculation. If the value of your super investments increases, those unrealised gains can contribute to your Division 296 earnings, even if the assets have not been sold.

For SMSF trustees with large balances or illiquid assets, understanding how the new rules operate is becoming increasingly important as the Division 296 regime moves closer to implementation.

Disclaimer

This article is provided for general information purposes only and should not be relied upon as taxation, financial or legal advice. Division 296 legislation is complex and the application of the law depends on individual circumstances. The examples provided are simplified for illustrative purposes and do not consider all adjustments that may apply under the legislation. Before making any decisions regarding your superannuation or SMSF, you should seek advice from a qualified taxation adviser or licensed financial adviser.