Division 296 is now law and applies from 1 July 2026. It adds an extra layer of tax to superannuation earnings that relate to a total super balance above $3 million. Sitting inside the same legislation is a one-off election that lets an SMSF reset the cost base of its assets to their market value at 30 June 2026, for Division 296 purposes only. The tax has taken all the headlines. For many trustees the election is the more urgent item, because it expires and cannot be recreated.
We have been looking after self-managed super funds from our Orange, Forbes and Parkes offices for more than 30 years, and a large share of those funds hold one of three things: farmland, business real property, or a share portfolio built up over two or three decades. Those are the funds where this election matters most. They are also the funds most likely to assume it has nothing to do with them.
What is Division 296?
Division 296 is an additional tax on superannuation earnings attributable to the part of a member’s total super balance that sits above $3 million. It was introduced to reduce the tax concessions flowing to very large super balances.
From the 2026 to 2027 financial year, three tiers apply.
| Total super balance | Additional tax on attributable earnings | Total effective rate |
|---|---|---|
| Up to $3 million | None. Existing super tax rules apply. | 15% |
| $3 million to $10 million | 15% | Up to 30% |
| Above $10 million | A further 10% | Up to 40% |
Both thresholds are indexed, though in steps rather than continuously. The $3 million threshold moves in $150,000 increments and the $10 million threshold in $500,000 increments.
The tax is assessed to the member, not to the fund. The ATO calculates the liability and issues the assessment to the individual, who can pay it personally or elect to have the money released from super. The first measurement date is 30 June 2027, so the first assessments will follow that year.
What changed from the original proposal?
Most trustees remember the fight over taxing unrealised gains. The version that passed is a different animal.
Division 296 now works on a realised earnings basis. Investment income and capital gains are generally recognised when an asset is actually sold, rather than being calculated off annual movements in market value. That was the most significant change made before the legislation cleared Parliament.
Two thresholds replaced one. Indexation was added. And transitional provisions were built in to keep capital growth that happened before commencement out of future Division 296 calculations. That last provision is the one trustees should be acting on now.
What is the Division 296 cost base reset?
The cost base reset is a once-only, voluntary election available to eligible SMSFs. Make it, and eligible assets have their market value at 30 June 2026 treated as their new cost base for Division 296 purposes only.
The reasoning behind it is simple enough. A great many SMSF assets have accumulated substantial capital gains over decades, long before Division 296 existed, and taxing that historical growth under a new regime was never the intent. The election lets a fund fix a point at 30 June 2026 and measure future Division 296 growth from there.
Ordinary CGT is untouched. The fund keeps two cost bases: the original one for normal SMSF tax, and the reset one for Division 296. The election is available to complying SMSFs with six or fewer members and is made in the fund’s 2026 to 2027 tax return.
How the reset works: a worked example
An SMSF bought a farming property in 2004 for $500,000. By 30 June 2026 it is worth $2 million.
Without the election, future Division 296 calculations can take account of gains measured from that original $500,000 purchase when the property is eventually sold. Twenty-two years of growth stays exposed.
With the election, the property’s cost base for Division 296 is reset to $2 million. Future growth is measured from that point. The $1.5 million of growth that accrued before the new regime started is quarantined from Division 296 calculations.
For a fund holding a long-held asset with significant unrealised growth, the difference is substantial.
Why funds under $3 million should still consider it
The most common misconception is that this only concerns members already above $3 million. It does not.
The election is available even where no member currently exceeds the threshold. If a member’s balance climbs past $3 million in a later year, the chance to make the election has already gone. Funds holding substantial growth assets, funds with younger members, and funds where a spouse will eventually receive a reversionary pension or a death benefit all have reason to look at this now.
Being under $3 million today does not mean the reset has no value to you.
The traps trustees need to understand
It is not automatic
The election has to be actively made. No election lodged, no reset. It must be lodged by the due date of the SMSF’s 2026 to 2027 tax return.
It is all or nothing, at fund level
The election operates at fund level and applies across every eligible directly held CGT asset. Trustees cannot reset the high-growth property and leave the rest alone. The adjustment also only reaches assets the fund owns directly. Assets held through other structures are treated differently. If an SMSF holds shares in a company, the cost base of the shares can be reset, but the underlying assets of the company cannot. For funds with unit trusts or interposed entities in the mix, that distinction does real work.
Resetting an asset that has fallen in value destroys the loss
This is the trap that gets least attention and it follows directly from the all-or-nothing rule. Because the election covers every directly held asset, it also captures the ones sitting below their original cost. Reset an asset bought for $300,000 that is worth $200,000 at 30 June 2026, and the new Division 296 cost base becomes $200,000. That $100,000 of accrued loss is gone for Division 296 purposes and cannot be carried forward to offset future earnings.
A fund holding one strongly appreciated property and a portfolio of underwater shares needs the numbers run across the whole fund before anyone signs anything.
Valuations have to hold up
The valuation date is 30 June 2026. Trustees need defensible evidence of market value at that date, and for farmland, business real property and unlisted investments that means proper valuation work rather than a desktop estimate. Start early. Valuers get busy at year end and an assessment lodged on thin evidence is an assessment worth challenging.
It cannot be undone
Once made, the election is generally irreversible.
What should SMSF trustees be doing now?
There are five things that need action asap!
- Identify every directly held asset in the fund carrying significant unrealised capital gains, and every one sitting at a loss.
- Arrange market valuations as at 30 June 2026, particularly for property and anything unlisted.
- Model whether members are likely to pass $3 million over the next ten to twenty years, not just where they sit today.
- Run the numbers on the fund as a whole, making and not making the election, so the loss position is priced in.
- Raise it with your adviser well before any asset sale is on the table, because the election is made in the 2026 to 2027 return and the valuation date has already passed by then.
Coverage of Division 296 has focused almost entirely on the new tax above $3 million. That matters. But for a lot of SMSF trustees the more immediate question is the cost base reset, and the window on it closes. Funds holding long-term growth assets, farmland and business real property in particular, stand to keep a meaningful amount of past growth out of future Division 296 calculations. Do not assume Division 296 is only relevant if your balance is above $3 million today. Once the opportunity passes, it cannot be recreated. We recommend speaking with your accountant or financial planner now to plan your next steps
