Division 296 received Royal Assent on 13 March 2026 and applies from 1 July 2026, with the first year of operation ending on 30 June 2027. But one of the most consequential decisions for SMSF trustees with balances approaching or exceeding $3 million must be made before that: the cost base reset election. This is not a planning item you can defer to next year. The election is once only, irrevocable, and applies to all CGT assets held in the fund. If you miss the window, it is gone.
What the Cost Base Reset Election Does
Under the enacted legislation, SMSF trustees can elect to reset the cost base of all CGT assets to their market value at 30 June 2026 for Division 296 purposes only. This means that any unrealised capital gains that have accumulated before 1 July 2026 are excluded from the Division 296 earnings calculation in future years. The pre 1 July 2026 gain remains relevant under the fund’s ordinary tax rules if the asset is sold, but it is carved out of the Division 296 calculation through the reset mechanism.Why This Matters
Consider an SMSF that holds a commercial property purchased for $1.5 million in 2015, now valued at $3.2 million. Without the cost base reset, if the property is eventually sold, the entire $1.7 million gain forms part of the Division 296 earnings calculation in the year of sale, potentially creating a substantial Division 296 liability on top of the ordinary CGT within the fund. With the cost base reset election, the cost base is reset to $3.2 million (the 30 June 2026 market value). Only gains above $3.2 million are included in the Division 296 calculation. The pre-July 2026 growth is carved out. For funds holding assets with significant unrealised gains, particularly direct property, unlisted investments, and long-held share portfolios, this election can materially reduce future Division 296 exposure. This scenario uses simplified figures for illustration only. Actual outcomes depend on the specific asset, fund structure, and professional advice obtained.What the Election Requires
The cost base reset is not automatic. Trustees must actively elect it. The election:- Applies to ALL CGT assets in the fund, not individual assets. You cannot selectively reset some and not others.
- Is irrevocable. Once made, it cannot be undone.
- Requires market valuations of all CGT assets at 30 June 2026. These valuations must be defensible (not just an estimate), particularly for property, unlisted company interests, and other assets without a readily observable market price.
- Must be documented in the fund’s records.
When the Election Does NOT Help
The cost base reset is not beneficial for every fund. If your SMSF holds primarily listed shares and ETFs with minimal unrealised gains, the election adds compliance cost (valuations) without significant Division 296 benefit. It is also less relevant for funds that are predominantly in pension phase, where earnings are already tax-free up to the transfer balance cap. However, for members with balances above $3 million, the pension phase exemption does not apply to the Division 296 calculation, which uses total superannuation balance regardless of phase. The decision to elect requires modelling, not a rule of thumb.What to Do Now
If your total superannuation balance is approaching or exceeding $3 million and your SMSF holds assets with significant unrealised gains:- Commission independent valuations of all CGT assets for 30 June 2026.
- Model the Division 296 impact with and without the cost base reset, across different holding period and sale scenarios.
- Discuss the election with your financial adviser, accountant, and auditor before 30 June 2026.
- Document the decision (whether you elect or not) in the fund’s trustee minutes.
