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Now that Division 296 applies to superannuation balances over $3 million, self-managed super funds (SMSFs) have a one-off choice to make: the Division 296 cost base election.
Most trustees have heard it described as the Division 296 cost base reset and assume it is a free win but like most things in life, it’s not that simple. This article explains what the election is, who it applies to, the deadline, and how to work out whether it helps your fund.
If you want the general picture first, read our Division 296 guide.
The Division 296 cost base election lets an SMSF adjust the cost base of assets it held at the end of 30 June 2026 to their market value on that date, for Division 296 purposes only.
It does not change your normal capital gains tax (CGT) cost base. When you actually sell the asset, your original cost base still applies for the funds ordinary income tax purposes.
It is all-or-nothing. If you elect, it applies to every CGT asset the fund held at the end of 30 June 2026. You cannot pick and choose assets to be covered by the election.
It is irreversible. Once made, you cannot undo it, irrespective of investment performance.
It mainly helps assets that have grown in value. For an asset now worth less than its cost base, making the election may leave you worse off.
You make the election by the due date for lodging your SMSF 2026-27 annual return, in the approved form, and keep a record of the election for five years after the last asset covered by the election has been disposed of.
Division 296 is a new tax on a portion of your superannuation earnings once your total superannuation balance passes $3 million. It applies at 15%, with a further 10% on the earnings linked to a balance above $10 million. Those earnings include realised capital gains.
Here is the concern for trustees. Some of the gain on a long-held fund asset built up years before Division 296 started, but it could still be counted once the asset is sold after 1 July 2026.
The Division 296 cost base election is the fix for that. It lets your fund treat its assets as if their cost base equalled their market value at the end of 30 June 2026, the day Division 296 measurement begins. Only the growth from that date onwards then counts towards your Division 296 earnings. The value that built up before then is recognised and left out.
This is the part trustees most often get wrong. The election does not reset the cost base you use for normal CGT when you sell an asset. Your original cost base stays in place for that purpose.
Instead, the Division 296 CGT election creates a separate, adjusted cost base used only to work out your Division 296 fund earnings. So, you can hold two figures for the same asset: the original cost base for ordinary CGT, and the 30 June 2026 market value for Division 296. Calling it a reset makes it sound bigger than it is. It is a targeted adjustment for one tax.
The election is available to SMSFs. It generally applies to assets your fund holds directly, not to assets held indirectly, other than through a custodian or a look-through arrangement such as a limited recourse borrowing arrangement (LRBA).
The date that matters for value is the end of 30 June 2026. To use the election, you need the market value of each fund asset as at that date. For listed shares that is straightforward. For direct property and unlisted investments, you need a defensible valuation, so it is worth arranging that now while it can still be supported.
You make the election in the approved form by the due date for lodging your SMSF 2026-27 annual return, and it cannot be revoked. You then keep records of the market values and cost base adjustments for five years. The election does not need to be sent to the ATO, but you must be able to produce the records.
The election is really a one-way call on future growth. It helps when your assets keep rising after 30 June 2026, because it strips the earlier gain out of your Division 296 earnings.
It can work against you in two situations:
An asset that has fallen below its cost base. Adjusting down to a lower market value locks in a smaller base, which can increase the gain counted for Division 296 later.
A fund where the original cost base would serve you better across the board. Because the election applies to every asset, you cannot keep the higher original base on some assets while adjusting others.
That is why it is not a default choice. The right answer depends on which assets your fund holds, how they have moved, and what you expect them to do.
Hypothetically speaking, assume your SMSF holds a commercial property bought for $1 million that is worth $2.5 million at the end of 30 June 2026. This example is illustrative only.
If you make the election, the property's Division 296 cost base becomes $2.5 million. If you later sell it for $3 million, only the $500,000 of growth after 30 June 2026 counts toward your Division 296 earnings, rather than the full $2 million gain.
Without the election, more of that gain may be counted towards Division 296 when you sell. For a fund holding long-held, appreciating assets, that difference can be significant.
Now assume instead that your SMSF bought $200,000 of CSL shares in July 2024, at about $308 a share, giving the fund 649 shares. This example is illustrative only. By 30 June 2026 the shares have fallen to $115, so the parcel is worth about $74,600, an unrealised loss of roughly $125,000.
If you make the election, the shares' Division 296 cost base resets to that lower value of $115 a share. If CSL later recovers to $308 and the fund sells, there is no capital gains tax, because the fund bought and sold at the same price and made no real profit. But for Division 296, the recovery from $115 back to $308, about $125,000, counts as earnings and is taxed accordingly. In other words, the election can leave you paying Division 296 tax on growth that only recovered an earlier loss.
Without the election, that recovery would not be swept into your Division 296 earnings the same way. So for a fund holding assets that have lost value, making the election can cost you.
Get the market value of every fund asset as at the end of 30 June 2026, and arrange valuations for property and unlisted assets now.
Model your position both ways: with the election and without it.
Check where your total superannuation balance sits against the $3 million threshold, because that drives how much Division 296 actually applies to you.
Make the decision with your advisor and record it before the lodgement deadline.
The cost base election is one of several Division 296 decisions, and they interact. Your total superannuation balance, the timing of when you sell assets, your pension strategy and your estate plan all affect the outcome, and the order you make these decisions in matters.
This is where modelling earns its place. A Findex SMSF and superannuation advisor can value your assets, run your fund both ways, and show you what the election does across your whole position before you commit to a choice you cannot undo. Findex brings SMSF, tax and wealth advice together, so the election is weighed against the rest of your plan.
The Division 296 cost base election is a separate measure from the capital gains tax changes due on 1 July 2027. For those, see our article on the CGT changes from 1 July 2027 and whether to sell or hold.
The cost base election is irreversible, so model it before you decide. For a fixed fee, a Division 296 Impact Assessment shows you where your balance sits, what Division 296 will cost you, and whether the election helps your fund. Book one today.
It is a one-off choice that lets an SMSF adjust the cost base of assets held at the end of 30 June 2026 to their market value on that date, for Division 296 tax purposes only. It means only growth after 30 June 2026 counts towards your Division 296 earnings.
It is an adjustment for Division 296 purposes only. It does not reset the cost base you use for ordinary CGT when you sell the asset.
Yes. If you make it, it applies to every CGT asset the fund held at the end of 30 June 2026. You cannot apply it to selected assets.
No. The election cannot be revoked.
You make it, in the approved form, by the due date for lodging your SMSF 2026-27 annual return, and you keep records for five years.
Yes. To use the election you need a defensible market value for each asset as at the end of 30 June 2026, so arrange valuations for property and unlisted investments early.
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Neil Sparks is a recognised leader in the self-managed superannuation fund (SMSF) sector, bringing over 20 years of experience across superannuation strategy, technical services, and industry education. Known for his ability to simplify complex SMSF concepts, Neil has held senior roles across the industry, including National Manager - SMSF Strategy at BT Financial Group and, most recently, Head of Membership and Corporate Development at the SMSF Association.
Neil works closely with regional teams across Australia, contributing to national strategy, trustee engagement, and thought leadership in the evolving superannuation landscape.
Qualifications and Memberships:
Fellow SMSF Specialist Adviser (FSSA™) - SMSF Association
Graduate Certificate in SMSF
Currently completing Master of Financial Planning
Neil is passionate about building strong relationships, listening deeply to clients, and using his technical expertise to deliver practical, strategic solutions that support their long-term goals.
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