Division 296
Exposure draft legislation has been released by the government for consultation on the Better Targeted Super Concessions measure announced in October 2025. Schedules 1 and 3 of the draft Bill, along with the draft Imposition Bill, propose the introduction of a new Division 296 tax to reduce superannuation tax concessions for individuals who have total superannuation balances surpassing $3 million. The measure proposes higher tax rates from the 2026-27 income year on superannuation earnings attributable to balances over $3 million, with headline rates of:
- Up to 30% on earnings attributable to the part of TSB between $3 million and $10 million, and
- Up to 40% on earnings attributable to the portion of TSB over $10 million.
The Division 296 tax will be charged directly to individuals. It is separate from income tax and from tax paid by superannuation funds. Individuals can choose to pay the tax either by withdrawing money from their superannuation or by using funds held outside super.
The $3 million and $10 million thresholds will be indexed to CPI, helping them stay broadly aligned with the transfer balance cap over time. Transitional arrangements will apply for CGT assets held before commencement. Division 296 fund earnings will be adjusted to identify accrued gains before commencement, with two proposed adjustment methods:
- A cost base adjustment method for small superannuation funds; and
- Factor method for other complying superannuation funds.
A further transitional rule will apply for 2026-27. Division 296 will be determined by reference to an individual’s TSB on 30 June 2027.
As a result, individuals with a TSB of $3 million or less at that date will not be subject to Division 296 tax for that year, even if their balance exceeds $3 million on 30 June 2026. The exposure draft does not include regulations, but Treasury has indicated these will address key operational details, including:
- Exclusions from total superannuation earnings for specific interests
- The attribution of relevant superannuation earnings, including the use of alternative calculation methods
- Valuation rules applicable to certain superannuation interests; and
- The methodology for calculating transitional CGT adjustments for large superannuation funds.
2025-26 Tax Expenditures and Insights Statement
The annual 2025-26 Tax Expenditures and Insights Statement (TEIS) estimates the revenue forgone due to tax exemptions, concessional rates, deductions, and offsets. TEIS can provide insight into areas that may attract focus from policy makers. Here are some large tax expenditure and deduction items:
- Main residence exemption
- Concessional taxation of employer superannuation contributions and superannuation earnings
- Rental deductions
- CGT discount for individuals and trusts
- Work-related expenses
- Lower tax rate for small companies
- FBT exemptions for public benevolent institutions
Targeted Exclusions from the R&D tax incentive
The draft legislation released by the Government would exclude tobacco, gambling, and nicotine-related research and development from the Research and Development Tax Incentive. This includes activities related to vaping and new or emerging nicotine products. The proposed rules would cover both direct and supporting R&D activities, even where those activities indirectly promote tobacco or gambling use. An exception applies only where activity is carried out to reduce harm.
Because of the strict “sole purpose” test, R&D projects with mixed objectives would not qualify for the RDTI. Businesses in impacted sectors—particularly technology and software providers—will need to closely assess their R&D activities. If passed, the changes would apply to income years starting on or after 1 July 2025.
Modernising Administration Systems for Trusts
Exposure draft legislation has been released by the Government for the Treasury Laws Amendment Bill 2025: Modernising trust administration systems. The draft bill proposes amendments to change how closely held trusts report beneficiary TFN to the ATO. The main proposed changes include simplified TFN reporting so that trustees of closely held trusts report beneficiary TFNs when filing the trust tax return, rather than on a quarterly basis. This applies where a beneficiary has quoted their TFN and is currently subject to a share of the trust income. The draft legislation also proposes that the Commissioner may notify a trustee of a beneficiary’s correct TFN where a quoted TFN is wrong, withdrawn, or cancelled. The Commissioner must notify both the beneficiary and trustee if a correct TFN has not been provided or information doesn’t match.
By aligning TFN reporting with the trust tax return, the ATO improves matching of trust income to beneficiaries, support pre-filling of individual returns, and ensure the right amount of tax is evaluated. The proposed TFN reporting rules may apply for income years starting on or after 1 July 2026.
Transfer Balance Cap Indexation
Following the release of the December 2025 CPI figures, the general transfer balance cap (TBC) will increase from $2.0 million to $2.1 million from 1 July 2026. This increase may create tax-effective retirement pension and non-concessional contribution opportunities for some clients.
Retirement Income Streams
Individuals who start a retirement-phase income stream for the first time on or after 1 July 2026 will have access to the full $2.1 million cap. As a result, some individuals may benefit from delaying the commencement of their retirement income stream until this date.