The SMSF Division 296 Cost Base Reset: What Trustees Must Do Before June 30, 2026
The Clock Is Ticking: 97 Days Until the Deadline
On 1 July 2026, the Division 296 tax takes effect. It imposes an additional 15% tax on superannuation earnings attributable to balances above $3 million. Combined with the existing 15% tax on super fund earnings, this means a total effective tax rate of 30% on earnings related to the portion above the threshold.
For SMSF trustees, the legislation includes one critical concession: a one-off, irrevocable election to reset the cost base of all directly held assets to their market value as at 30 June 2026. This is designed to protect decades of pre-existing capital growth from being captured in the new tax calculation.
Miss the deadline, and the opportunity is gone. Forever.
As of 25 March 2026, you have 97 days to prepare. Here’s exactly what you need to do.
Understanding Why the Cost Base Reset Matters
Division 296 taxes unrealised gains. This is the fundamental shift that makes it different from any other tax in the Australian super system. You don’t need to sell an asset to be taxed on the increase in its value.
Here’s a practical example:
Scenario: SMSF With a Commercial Property
Say your SMSF purchased a commercial property in 2015 for $1.5 million. It’s now worth $3.2 million in March 2026 (a gain of $1.7 million). Your total super balance across all funds is $4.5 million.
Without the cost base reset:
The Division 296 calculation would include any increase in the property’s value from 1 July 2026 onwards, measured against the original cost base of $1.5 million. So if the property is worth $3.4 million at 30 June 2027, the earnings calculation captures $200,000 of growth (from $3.2m to $3.4m), but critically, the unrealised gain above the original cost base flows through in the overall TSB movement calculation.
With the cost base reset:
By electing to reset the cost base to the 30 June 2026 market value of $3.2 million, only growth from that point forward is captured in the Division 296 earnings calculation. The $1.7 million in pre-existing gains is permanently shielded.
The Dollar Impact
Let’s quantify the difference over 10 years for this example:
| Year | Property Value | Without Reset (Cost Base $1.5m) | With Reset (Cost Base $3.2m) |
|---|---|---|---|
| 2027 | $3,400,000 | Gain: $1,900,000 | Gain: $200,000 |
| 2028 | $3,600,000 | Gain: $2,100,000 | Gain: $400,000 |
| 2029 | $3,800,000 | Gain: $2,300,000 | Gain: $600,000 |
| 2030 | $4,000,000 | Gain: $2,500,000 | Gain: $800,000 |
| 2031 | $4,200,000 | Gain: $2,700,000 | Gain: $1,000,000 |
The difference in measured unrealised gains is $1.7 million every single year. While the actual Division 296 tax depends on total earnings and the proportion above $3 million, the cost base reset could save tens of thousands of dollars in additional tax over time.
Illustrative annual tax saving (assuming TSB of $4.5m, so 33.3% above threshold):
- Year 1 without reset: 15% × $1,900,000 × 33.3% = $94,905
- Year 1 with reset: 15% × $200,000 × 33.3% = $9,990
- Annual saving: approximately $84,915
These numbers are simplified, the actual calculation is more complex. But the magnitude is clear: for SMSFs with significant unrealised gains on directly held assets, the cost base reset is potentially worth hundreds of thousands of dollars over the life of the fund.
Who Should Elect the Cost Base Reset?
Not every SMSF trustee should automatically make this election. The decision depends on your specific asset portfolio.
When the Reset Is Almost Certainly Beneficial
- SMSFs holding property purchased years ago with large unrealised capital gains. Commercial property, industrial property, and residential investment property held in super are prime candidates.
- SMSFs with long-held shares that have appreciated significantly. If you bought BHP at $15, CBA at $40, or CSL at $100, the unrealised gains are substantial.
- SMSFs with collectibles or alternative assets (artwork, rare coins) that have appreciated since purchase.
When You Need to Think Carefully
The critical catch is that the cost base reset applies to ALL directly held assets. You cannot cherry-pick.
This creates a problem if your SMSF holds assets that are currently in a loss position. Resetting the cost base on a loss-making asset locks in that lower value as the new cost base for Division 296 purposes, meaning you lose the ability to offset that unrealised loss against future gains.
Example:
| Asset | Original Cost | Market Value 30 June 2026 | Unrealised Position |
|---|---|---|---|
| Commercial property | $1,500,000 | $3,200,000 | +$1,700,000 gain |
| ASX shares (Portfolio A) | $800,000 | $1,100,000 | +$300,000 gain |
| ASX shares (Portfolio B) | $500,000 | $350,000 | -$150,000 loss |
| Net position | $2,800,000 | $4,650,000 | +$1,850,000 |
If you elect the reset, the cost base on Portfolio B drops from $500,000 to $350,000. You can no longer offset that $150,000 loss against gains in future Division 296 calculations.
In this case, the election is still beneficial because the net gain protected ($1,850,000) far outweighs the lost offset ($150,000). But if your portfolio had more substantial losses, the calculation could be different.
Strategic Option: Sell Loss-Making Assets Before June 30
One approach that SMSF advisers are recommending is to sell assets in a loss position before 30 June 2026, then make the cost base reset election on the remaining (profitable) assets. This allows you to:
- Crystallise the loss for CGT purposes within the fund
- Avoid resetting the cost base on loss-making positions
- Repurchase similar assets after 1 July if desired (note: the wash sale provisions may apply for identical assets)
This requires careful planning and professional advice.
Step-by-Step: What You Need to Do Before June 30, 2026
Step 1: Determine If You’re Affected (Now)
Check whether your total superannuation balance (TSB) across all funds exceeds $3 million. Log into myGov and check your ATO super account, or contact your funds directly. Remember, it’s the total across ALL funds (SMSF plus any industry/retail fund balances) that matters, not just your SMSF balance.
Even if your balance is currently below $3 million, consider whether it’s likely to exceed the threshold in coming years. The $3 million threshold is not indexed to inflation, so it will catch more people over time. The cost base reset opportunity, however, is available regardless of your current balance.
Step 2: Get Independent Valuations for All Directly Held Assets (March-May 2026)
This is the most time-sensitive step. You need accurate, defensible market valuations for every directly held asset in your SMSF as at 30 June 2026.
For real property:
- Obtain a formal valuation from a registered valuer (API-accredited)
- Cost: typically $2,000-$5,000 for commercial property, $500-$1,500 for residential
- Allow 4-6 weeks for completion
- The ATO will scrutinise SMSF property valuations closely, so don’t rely on informal estimates
For listed shares and ETFs:
- Use the closing market price on 30 June 2026. No independent valuation needed.
For unlisted investments:
- Private company shares, unlisted unit trusts, loans to related parties all need formal valuations
- Consider engaging a business valuer (CBV or CA-qualified)
- Cost: $3,000-$15,000+ depending on complexity
For collectibles and personal-use assets:
- Obtain a valuation from a qualified specialist in the relevant field
- The ATO’s guidance on SMSF asset valuations (SMSFR 2009/3) applies
Step 3: Review Your Portfolio for Loss-Making Assets (April-May 2026)
Identify any assets currently below their cost base. For each one, assess:
- Is the loss likely to persist or reverse before 30 June?
- How large is the loss relative to your total unrealised gains?
- Would selling before 30 June and repurchasing after 1 July be practical and cost-effective?
Step 4: Consult Your SMSF Specialist or Financial Adviser (April-May 2026)
This is not a DIY decision. The irrevocable nature of the election means a mistake cannot be corrected. Seek advice from:
- A specialist SMSF accountant who understands the Division 296 legislation
- A licensed financial adviser with SMSF expertise
- Potentially, a tax lawyer if your situation involves complex structures (corporate trustees, related-party transactions, etc.)
The cost of professional advice ($2,000-$5,000) is negligible compared to the potential tax savings or the cost of getting the decision wrong.
Step 5: Document Everything (June 2026)
Ensure your SMSF records include:
- Formal valuations for all non-listed assets as at 30 June 2026
- Board minutes recording the trustee’s decision to elect (or not elect) the cost base reset
- A schedule of all assets showing original cost base and 30 June 2026 market value
- Records of any assets sold prior to 30 June as part of the strategy
Step 6: Make the Election When Lodging the 2026-27 Annual Return
The actual election is made through the SMSF annual return for the 2026-27 income year. Your SMSF accountant or auditor will handle this when preparing the return. But the preparation work must be done before 30 June 2026.
Other Super Changes Taking Effect on 1 July 2026
While the cost base reset is the most urgent issue, several other superannuation changes are also taking effect on the same date. Your EOFY planning should consider all of them:
Contribution Cap Increases
| Cap | Current (2025-26) | From 1 July 2026 |
|---|---|---|
| Concessional contributions cap | $30,000 | $32,500 |
| Non-concessional contributions cap | $120,000 | $130,000 |
| Bring-forward maximum (3 years) | $360,000 | $390,000 |
| Transfer balance cap (TBC) | $2,000,000 | $2,100,000 |
Payday Super
From 1 July 2026, employers must pay superannuation guarantee contributions on payday, not quarterly. SMSF trustees need to ensure their fund’s electronic service address (ESA) is active and their bank account can receive more frequent contributions. This is a significant administrative change for SMSFs that receive employer contributions.
Super Guarantee Rate Increase
The SG rate increases from 12% to 12.5% on 1 July 2026, on its way to 15% by 2030.
What Non-SMSF Members Need to Know
If your super is in an APRA-regulated fund (industry fund or retail fund), the cost base reset election is not available to you. Instead, the legislation provides a proportional method to phase out pre-existing gains:
| Income Year | Proportion of Net Capital Gains Excluded |
|---|---|
| 2026-27 | 80% |
| 2027-28 | 60% |
| 2028-29 | 40% |
| 2029-30 | 20% |
| 2030-31 | 0% (all gains included) |
This means APRA fund members get a five-year transition, but no permanent protection. SMSF members who elect the cost base reset get permanent protection on pre-existing gains, which is a significant structural advantage.
This difference may prompt some high-balance members of APRA funds to consider rolling over to an SMSF before 1 July 2026, specifically to access the cost base reset election. This is a major decision with significant implications and should only be considered with professional advice.
Common Mistakes to Avoid
Waiting too long to get valuations. Property valuers and business valuers are already experiencing high demand as the deadline approaches. If you wait until June, you may not be able to get a valuation in time.
Assuming your balance won’t hit $3 million. The threshold isn’t indexed. With contribution caps increasing and investment growth compounding, today’s $2.5 million balance could exceed $3 million within a few years. The cost base reset opportunity doesn’t come again.
Ignoring the loss-asset trap. Blindly electing the reset without reviewing loss-making positions could inadvertently increase your future tax liability. Run the numbers on all assets, not just the winners.
Not documenting the decision. The ATO will expect SMSF trustees to have considered the election as part of their trustee duties. Whether you elect or not, document the decision and the reasoning in your board minutes.
DIY without advice. This is one of the most consequential decisions an SMSF trustee will make in 2026. The irrevocable nature means there’s no room for error. Professional advice is essential.
The Bottom Line
The Division 296 cost base reset is a once-in-a-lifetime opportunity for SMSF trustees. For funds with significant unrealised gains on directly held assets (particularly property and long-held shares), the potential tax savings are substantial, potentially hundreds of thousands of dollars over the life of the fund.
But the window is closing. With 97 days until 30 June 2026, the time to act is now. Get your valuations ordered, review your portfolio for loss-making positions, and speak to your SMSF specialist.
Don’t let this deadline pass you by.
Need an SMSF specialist to help you navigate the Division 296 cost base reset? WealthWorks connects you with verified accountants and financial advisers who specialise in self-managed super. Find a verified SMSF accountant on WealthWorks →
Frequently Asked Questions
What is the Division 296 cost base reset for Australian SMSFs?
The Division 296 cost base reset is a one-off election available only to self-managed super funds (SMSFs) that allows trustees to reset the cost base of all directly held assets to their market value as at 30 June 2026. This protects pre-existing unrealised capital gains from being captured in the new Division 296 tax calculation. The election must be made before the deadline and is irrevocable once lodged.
When is the deadline for the Division 296 cost base reset election in Australia?
The cost base reset applies to asset values as at 30 June 2026. SMSF trustees will need to have accurate market valuations for all directly held assets by this date. The election itself is made when lodging the SMSF annual return for the 2026-27 income year. However, the critical preparation work, including obtaining independent valuations, must be completed by 30 June 2026.
Does the Division 296 cost base reset apply to all Australian super funds?
No. The cost base reset election is only available to SMSFs with directly held assets. Large APRA-regulated funds (industry funds, retail funds) use a different proportional method to account for pre-existing gains. Under this approach, 80% of net capital gains in the first year (2026-27) are excluded, reducing by 20 percentage points each year until all gains are included from 2031-32 onwards.
Can I exclude loss-making assets from the cost base reset in my Australian SMSF?
No. The cost base reset applies to ALL directly held assets in the SMSF. You cannot cherry-pick which assets to include. If some assets are in a loss position at 30 June 2026, their cost base will also be reset to the lower market value, which means you lose the ability to claim that unrealised loss for Division 296 purposes in future years. This is why trustees need to carefully review all holdings before deciding whether to make the election.
Who is affected by Division 296 tax in Australia?
Division 296 applies to individuals with a total superannuation balance (TSB) exceeding $3 million across all funds as at 30 June. Based on ATO data, approximately 80,000 Australians currently have super balances above $3 million. However, with rising asset values and increasing contribution caps, more people will be caught over time. The $3 million threshold is not indexed to inflation, meaning it will capture progressively more Australians each year.
How is the Division 296 tax calculated for Australian super fund members?
Division 296 calculates the proportion of your total super earnings that relate to the balance above $3 million, then applies an additional 15% tax. The formula is: Additional tax = 15% × Earnings × (TSB - $3,000,000) / TSB. Earnings include both realised gains and unrealised gains (the change in your total super balance adjusted for contributions and withdrawals). This means you can be taxed on paper gains even if you haven't sold any assets.
