A new tax on super earnings above $3 million starts 1 July 2026. Buried inside the legislation is a transitional measure that can permanently shelter years of built-up capital gains from its reach. The practical preparation window closes 30 June 2026, even though the formal lodgement comes later.
Key Takeaways
- Division 296 imposes an additional 15% tax on the proportion of super earnings attributable to balances above $3 million (bringing the effective rate on those earnings to 30%), and a further 10% on the proportion above $10 million (effective rate 40%), starting 1 July 2026. The tax applies to realised earnings only.
- The election is opt-in, not automatic. SMSFs and small APRA funds can make a once-only, irrevocable election to reset the cost base of every directly held CGT asset to its 30 June 2026 market value, for Division 296 purposes only.
- The election is all-or-nothing. It applies to every directly held asset in the fund, or none. Individual assets cannot be selected.
- Assets sitting at a loss have their cost base reduced by the election, which can increase future Division 296 exposure. Funds with mixed gain and loss positions need to model the decision carefully.
- The formal lodgement deadline is the due date of the 2026-27 annual return, but the practical deadline is 30 June 2026, because valuations, asset analysis, and any required sales must all be completed by that date.
- Funds below $3 million today can still elect. If the balance crosses $3 million in a future year, the election window will already have passed.
Contents
- What Division 296 Taxes
- How the CGT Cost Base Reset Works
- The All-or-Nothing Trap
- Worked Example: Three Assets, One Decision
- Why the Practical Deadline Is Earlier Than It Looks
- What Trustees Should Consider
- Frequently Asked Questions
What Division 296 Taxes
Division 296 received Royal Assent on 13 March 2026 and takes effect from 1 July 2026.
The tax is assessed to the individual member, not the fund. It applies only to realised earnings, calculated using a specific formula that adjusts the fund’s taxable income for assessable contributions, exempt current pension income, and non-arm’s length income. The original proposal to tax unrealised gains was removed during the legislative process, which was a significant change from the initial design.
The additional tax applies only to the proportion of earnings attributable to the balance above each threshold, not to all earnings in the fund. Both thresholds are indexed to CPI. For the broader threshold framework SMSF trustees need to monitor, see the SMSF Rules and Limits reference.
| Total super balance | Additional Division 296 tax | Effective rate on that proportion of earnings |
|---|---|---|
| Up to $3 million | Nil | 15% (existing fund tax only) |
| $3 million to $10 million | +15% | 30% |
| Above $10 million | +25% | 40% |
Note: the additional tax rates apply proportionally. A member with $4 million in super does not pay the additional 15% on all earnings. They pay it only on the proportion of earnings attributable to the $1 million above the $3 million threshold.
About 80,000 Australians are currently in scope. The majority of affected accounts are in SMSFs.
The tax applies across all superannuation interests an individual holds, including SMSF balances, industry fund balances, and any other regulated super. It is the individual’s total super balance that determines whether the thresholds are exceeded, not the balance in any single fund.
First-year transitional rule: For the 2026-27 financial year only, Division 296 is assessed based on total super balance at 30 June 2027 (end of year only), not at both the start and end of the year as in subsequent years. This means a member whose balance is above $3 million at 1 July 2026 but falls below it by 30 June 2027 would not be assessed for that first year.
The first assessments will not arrive until after 30 June 2027. For the wider list of dates trustees need to manage around the transition year, see the SMSF Compliance Calendar.
How the CGT Cost Base Reset Works
Inside the legislation is a transitional measure available exclusively to SMSFs and small APRA funds (SAFs). APRA-regulated funds such as industry and retail funds are not eligible for this election. They receive a separate four-year phase-in instead.
The election is opt-in, not automatic. Trustees must actively elect by lodging an approved form with the ATO by the due date of the fund’s 2026-27 annual return. If no election is lodged, the default position applies and all pre-2026 gains remain inside the Division 296 calculation permanently.
Trustees who elect can reset the cost base of every directly held CGT asset in the fund to its market value as at 30 June 2026, for Division 296 purposes only. This means capital gains that accumulated before the new rules existed are excluded from future Division 296 earnings calculations when those assets are eventually sold.
The election does not change the fund’s ordinary CGT position. The original cost base continues to apply for normal income tax purposes. The fund will need to maintain two separate cost base records for every affected asset: the original cost base for fund-level CGT, and the reset cost base for Division 296. These dual records should be kept for at least five years after the relevant asset is disposed of, or longer if required by the fund’s record retention obligations.
The separate question of whether growth assets are better held inside or outside super may also change under the 2026 budget CGT proposals. For that comparison, see our post-budget analysis of the SMSF budget 2026 CGT, negative gearing and trust changes.
Consider a concrete example. A fund holds a commercial property purchased in 2012 for $800,000. At 30 June 2026, it is worth $1.4 million. That is $600,000 in gains built up before Division 296 even existed.
Without the election, that $600,000 is embedded in the Division 296 earnings calculation when the property is eventually sold. With the election, the cost base resets to $1.4 million and only gains from 1 July 2026 onward are captured.
For many funds, this permanently shelters hundreds of thousands, sometimes millions, of pre-2026 gains from the additional 15% to 25% tax.
The All-or-Nothing Trap
The election applies to every directly held CGT asset in the fund on 30 June 2026, or none of them. Individual assets cannot be selected.
This is where the decision becomes genuinely difficult.
For assets sitting on large unrealised gains, the election is clearly beneficial. It shelters those gains permanently. But for any asset that has fallen in value below its original cost base, the election works in reverse. Resetting the cost base downward means future recovery is treated as a new gain for Division 296 purposes, even though the fund has not yet returned to its original purchase price.
A fund with assets in both positions needs to think carefully. If the loss-position asset is material, electing across the whole portfolio could produce more Division 296 exposure than it removes.
The only way to exclude a specific asset from the election is to sell it before 30 June 2026. That triggers a CGT event inside the fund in 2025-26. Whether the tax cost of that sale is less than the ongoing Division 296 exposure requires modelling by a qualified SMSF specialist. If a sale would materially change the fund’s asset mix, the fund’s investment strategy should be reviewed at the same time.
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Worked Example: Three Assets, One Decision
| Asset | Original cost | 30 June 2026 value | Position |
|---|---|---|---|
| Commercial property | $800,000 | $1,400,000 | $600,000 gain |
| Share portfolio | $300,000 | $420,000 | $120,000 gain |
| Listed shares (XYZ) | $200,000 | $160,000 | $40,000 loss |
If the trustee elects, all three assets reset to their 30 June 2026 market values.
The property resets to $1,400,000. The $600,000 pre-2026 gain is permanently sheltered from Division 296 when the property is eventually sold.
The share portfolio resets to $420,000. The $120,000 pre-2026 gain is sheltered.
But XYZ shares reset to $160,000. The cost base drops from $200,000 to $160,000. If XYZ recovers to $220,000 when sold, Division 296 treats the full $60,000 recovery as a new gain, even though the fund is only $20,000 ahead of its original purchase price.
In this fund, the case for electing is still likely positive because the sheltered gains on the property and shares outweigh the loss-position problem on XYZ. But the decision requires modelling across the whole portfolio, not just the assets with the largest gains. Every fund’s position is different, and this analysis should be completed with the assistance of a qualified SMSF accountant or adviser.
Why the Practical Deadline Is Earlier Than It Looks
The formal deadline to lodge the election is the due date for the fund’s 2026-27 annual return. That sounds like there is time.
There is not as much as it appears.
Three things must happen before 30 June 2026, regardless of the formal lodgement date.
1. Market valuations must be arranged in advance. Trustees need accurate valuations for every CGT asset in the fund as at exactly 30 June 2026. For listed assets, that is straightforward. For property, private investments, or any illiquid holding, commissioning a defensible valuation takes time. Independent property valuations can take 4 to 6 weeks depending on the complexity. The ATO requires valuations to reflect market value and expects them to be prepared or reviewed by a qualified independent valuer. For what auditors usually expect to see as valuation evidence, see the SMSF Audit Guide.
2. Loss-position assets must be dealt with before 30 June. If the analysis reveals that a specific asset should be excluded from the election because it is in a loss position, the decision to sell that asset must be executed before 30 June. There is no mechanism to exclude it after that date. Trustees considering property sales should be aware that settlement timelines typically extend well beyond 30 June unless the sale process begins immediately.
3. The election cannot be made after the first asset sale. Once the fund sells any asset that was held on 30 June 2026, the election can no longer be validly made for that disposal. The election must be lodged before the fund disposes of the first CGT asset held on that date. Any trustee who defers the decision and sells a fund asset in July or August before formally lodging may find the window has already closed.
The valuation work, the asset analysis, and any required sales all have a hard 30 June cutoff. The formal lodgement can come later. The decisions cannot.
What Trustees Should Consider
The first step is to confirm whether any member’s total super balance is at or approaching $3 million. If it is, the cost base reset election is worth discussing with an SMSF accountant before the end of May. That leaves time for valuation planning, modelling of gain and loss positions, and any required asset decisions before the 30 June window closes.
Funds below $3 million should not assume this is irrelevant. If the fund holds assets with significant built-up gains and the balance could plausibly cross $3 million in future years, electing now permanently shelters those pre-2026 gains. The election window will not reopen. Whether it makes sense depends on the fund’s specific position and requires modelling before any decision is made. If further contributions could push the balance toward the threshold, the SMSF Contribution Caps page is the practical reference point for current caps and TSB limits.
This article provides general information about Division 296 and the CGT cost base reset election. Every fund’s circumstances are different. Before making any decision about the election, trustees should consult a licensed financial adviser or SMSF specialist who can assess their specific position.
Frequently Asked Questions
Who is eligible for the CGT cost base reset election?
The election is available to SMSFs and small APRA funds (SAFs). Members of APRA-regulated funds such as industry and retail funds are not eligible. Those funds receive a separate four-year phase-in for pre-2026 capital gains instead. The election is opt-in and must be actively lodged with the ATO. It does not apply automatically.
Can I choose which assets to include in the election?
No. The election applies to every directly held CGT asset in the fund on 30 June 2026, or none of them. There is no mechanism to select individual assets. The only way to exclude a specific asset is to sell it before 30 June 2026.
Does the election affect the fund’s ordinary CGT?
No. The original cost base continues to apply for normal income tax purposes. The reset cost base applies only when calculating Division 296 earnings. The fund will need to maintain two separate cost base records for each affected asset.
What if my balance is below $3 million?
You can still elect. The election is available to all eligible SMSFs regardless of current member balances. If your balance crosses $3 million in a future year, the election will already be in place and pre-2026 gains will be sheltered. If your balance never crosses $3 million, the election has no practical effect but costs nothing to make. Discuss with your accountant whether electing makes sense for your fund, particularly if the fund is approaching pension phase.
Does the election apply to assets held through a unit trust?
No. The election applies to directly held assets only. Pre-2026 gains embedded inside unit trusts, managed funds, or other interposed entities are not sheltered, even if the fund holds units in those entities directly.
What happens if I sell an asset before lodging the election?
If the fund sells any asset that was held on 30 June 2026 before the election is lodged, the election cannot be validly made for that disposal. The election must be lodged before the first relevant asset disposal. Trustees should not sell any fund assets post-30 June until the election decision has been finalised and the form lodged.
When is the formal lodgement deadline?
The election must be lodged by the due date of the fund’s 2026-27 annual return. For most funds lodging via a registered tax agent, this will be in early to mid-2028. However, the practical preparation work (valuations, asset analysis, and any required sales) must be completed by 30 June 2026.
Is Division 296 tax assessed on the fund or the individual?
Division 296 tax is assessed on the individual member, not the fund. The member can choose to pay it personally or elect to have the amount released from their superannuation interest.
What are the Division 296 thresholds and are they indexed?
The large super balance threshold is $3 million and the very large super balance threshold is $10 million for the 2026-27 financial year. Both thresholds are indexed to CPI and will increase over time.
Is there a transitional rule for the first year?
Yes. For the 2026-27 financial year only, Division 296 is assessed based on total super balance at 30 June 2027 (end of year only). In subsequent years, the tax applies if the balance exceeds the threshold at either the start or the end of the financial year. This means a member whose balance is above $3 million at 1 July 2026 but below it at 30 June 2027 would not be assessed for that first year.
This article is general information only and does not constitute financial advice. The Division 296 CGT cost base reset election is a significant, irrevocable decision that depends on each fund’s specific circumstances. Always consult a licensed financial adviser or SMSF specialist before making decisions about your fund.