Division 296 tax

The CGT cost base election

Division 296 taxes realised earnings, including capital gains when assets are sold. Without relief, gains that built up years before the tax started would be caught when an asset is eventually sold. The cost base election deals with that.

What it does

If the fund makes the election, the cost base of its assets is reset to their market value at 30 June 2026, for working out Division 296 earnings only. Gains made before Division 296 began then fall outside it. Ordinary fund tax on those gains doesn't change.

Why you still look at each asset

Because the reset applies across the board, assets sitting at a loss are reset to market value too. That can remove a loss that would otherwise have reduced Division 296 earnings when the asset recovers or is sold. So the decision means weighing the whole portfolio: large unrealised gains (and whether they're likely to last) against large losses that may well recover.

When it's often worth it, and when it may not be

• Often worth it: a fund with large unrealised gains whose members are, or may become, over $3 million.
• May not be worth the effort: smaller funds unlikely ever to reach $3 million, or older members with modest balances. That can change if family members may join the fund later while assets still carry unrealised gains.
• Only directly held assets qualify. Indirectly held assets are generally excluded, apart from those held through a custodian or an LRBA holding trust.

Timing and records

There's no rush. The election must be made by the due date of the fund's 2026–27 annual return (for most funds lodging through a tax agent, around May 2028), in the ATO's approved form. It isn't lodged with the ATO, but the fund must keep records of each asset's valuation and cost base for at least five years after the last CGT event for those assets. Valuations and transactions between now and then can be factored into the decision.

Reporting at lodgement

If a member is likely to be over $3 million, the ATO expects the fund's Division 296 earnings figure to be declared in the SMSF annual return when it's lodged. Under its current draft guidance, correcting the figure later means amending the return, so it's worth having the valuation and cost base records ready early. More on reporting →

As at October 2026, the ATO's approved form and its law companion ruling on the calculations were still to be released. Check current ATO guidance before relying on this. General information only, not personal financial advice. Reporting expectation: Jemma Sanderson (Cooper Partners), The Tax Institute National Superannuation Conference, reported in SMS Magazine. Source: ATO, About Division 296 tax for SMSFs.