Division 296 is now law and applies from 1 July 2026, and its first balance test falls on 30 June 2027.
An optional election for SMSFs looks back to 30 June 2026, a date that has already passed. For a fund that makes it, the 30 June 2026 market value of its capital gains tax (CGT) assets, generally those it holds directly, becomes the first element of their cost base for working out Division 296 fund earnings.
The first test: 30 June 2027
Division 296 adds tax on the earnings attached to large super balances. For the 2026-27 income year, the large super balance threshold is $3 million and the very large super balance threshold is $10 million. The Australian Taxation Office (ATO) describes the tax as an additional 15% on the proportion of earnings relating to a total super balance above $3 million, and an additional 10% on the proportion above $10 million.
For this first year a transitional rule applies, and the ATO looks only at your total super balance at 30 June 2027. From 2027-28 onwards, it will look at your balance just before the start of the year or at the end of it.
In the ATO's own example, a member's balance falls from $3,150,000 at 30 June 2026 to $2,950,000 by 30 June 2027. Only the 2027 figure counts in the first year, so the member is not assessed for Division 296 for 2026-27.
The ATO's guidance adds two more points.
- Amounts owing under a limited recourse borrowing arrangement are never included in your total super balance for Division 296 purposes.
- A member who dies during 2026-27 will never be liable for Division 296 tax.
The second date: 30 June 2026
A self-managed superannuation fund (SMSF) can elect to make a CGT adjustment that, in the ATO's words, "recognises the level of accrued value prior to the commencement of the Division 296 tax". Division 296 fund earnings are worked out from the fund's taxable income, which depends in part on the cost base of each asset. For Division 296 purposes only, the first element of the cost base or reduced cost base of each CGT asset the fund held at the end of 30 June 2026 is taken to be its market value at that date. The other elements are reduced to nil.
The ATO's guidance sets out how the election works:
- It applies to all the fund's CGT assets held at the end of 30 June 2026, not a selection.
- It is generally available only for assets the fund holds directly, with exceptions for assets held through a custodian or a tax look-through arrangement, such as the holding trust in a limited recourse borrowing arrangement.
- It must be made in the approved form, which the ATO has said it will provide in due course, by the due date of the fund's 2026-27 annual return.
- It cannot be revoked.
- It does not need to be provided to the ATO, but the fund must keep records of each element of each asset's cost base and reduced cost base, as affected by the election.
- Members do not need to be over $3 million for the fund to opt in.
Whether to make the election is a decision for the trustees, with their accountant or adviser. We do not advise on it.
Why your auditor will care about 30 June 2026
If the fund elects, the market value at 30 June 2026 becomes the first element of the cost base used in working out Division 296 fund earnings for that asset. In our view, a value that was rolled forward, or supported by a single document, then has more riding on it than it did when it was reported.
Every SMSF must already value its assets at market value each year under regulation 8.02B. The ATO's guidance to auditors on real property is that a single item of evidence is generally not enough unless the property was recently bought, and that evidence should support a value as close as possible to 30 June.
We covered what that evidence looks like in Reg 8.02B is now one in eight breaches, and why the same value three years running draws the ATO's attention in Same value three years running?.
What to look at now
- Check what evidence sits behind each asset's value at 30 June 2026, while it is still easy to gather. The evidence has to support market value at that date, whichever way the number falls.
- Talk to your accountant about the election well before the 2026-27 annual return is due.
- If any member's total super balance across all their funds is near $3 million, the evidence behind the fund's 30 June 2027 values matters too, because that is the balance the first test uses.
Part 2 looks at the calculation a fund with a member over $3 million has to do, and why it may need an actuary.
SMSF Audit Group are independent SMSF auditors registered with the Australian Securities and Investments Commission (ASIC). If you want to know what evidence your fund's 30 June values need, talk to us.