Article

A guide to Division 296 for SMSFs

2026.10.21 Division 296 For Smsfs Kearney Group

14 October 2026 Read time: 4 min

Author Matt Englund

Expert Reviewer Con Antonio, CPA

Division 296 for SMSFs – unpacking capital gains tax adjustments and market valuations.

Not familiar with all the acronyms? Check out our glossary before reading.

Division 296 recap

New Division 296 tax rules apply from 1 July 2026, introducing an additional tax on superannuation earnings for individuals with large superannuation balances.

For the 2026-27 income year, Division 296 applies where a member’s Total Superannuation Balance (TSB) exceeds $3 million at 30 June 2027, with a higher rate applying to the proportion of earnings above $10 million.

The transitional window (now until 30 June 2027) means there is still time to review super balances before the first assessment.

At a glance – how Division 296 works

Division 296 imposes a tiered tax system on an individual’s relevant super earnings.

Earnings on accumulation balances up to $3 million per member — taxed at 15%
Earnings on balances between $3 million and $10 million — taxed at 30% (15% + 15%)
Earnings on balances above $10 million — taxed at 40% (15% + 25%)

These rates reflect the existing 15% tax on super earnings, plus the additional Division 296 tax.

It’s worth noting that actual tax outcomes may vary because eligible capital gains can receive a CGT discount, while retirement-phase earnings can be exempt from ordinary fund tax.

Division 296 is assessed separately on the individual and can apply to both accumulation and retirement-phase interests.

How it’s assessed

The assessment for the first financial year (2026-27) is a first-year balance test only – meaning, it will test your TSB as of 30 June 2027.

For all subsequent financial years (from 2027-28 onwards), both your opening and closing balance will be assessed, and you will be tested on whichever balance is higher.

Indexed thresholds

Super balances will be indexed incrementally in line with the consumer price index.

Large super balances / LSB ($3 million – $10 million) will be indexed in $150,000 increments
Very large super balances / VLSB (over $10 million) will be indexed in $500,000 increments

How it will apply to SMSFs

The Division 296 rules include assets held by Self-Managed Super Funds (SMSFs).

So, for SMSF members, undergoing a review is particularly important where the fund holds assets – such as property – that may have increased in value.

SMSF valuations

Since 2012, SMSF trustees have been required to value fund assets at market value when preparing their annual financial statements. The valuations need to be objective and supported by appropriate evidence.

This hasn’t changed, but with the introduction of Division 296, SMSF trustees have a one-off opportunity to apply a cost-base reset to eligible assets.

The CGT election — an optional cost-base reset

The transitional rule allows trustees to make a one-off election to reset the cost base and reduced cost base of eligible CGT assets to their market value at 30 June 2026, for Division 296 purposes only. Meaning, they can elect to use the market value of eligible assets at 30 June 2026 as the starting cost base for Division 296 purposes.

This election resets the cost base to the asset’s market value at 30 June 2026, which is likely higher than the original value. This can reduce the capital gain subject to Division 296 when the asset is eventually sold. This is only for Division 296 purposes and the funds ordinary CGT cost bases remain unchanged.

This election requires an accurate market valuation of the assets, reflective of their value at 30 June 2026.

The trustee must make the election, in the approved form by the due date for lodging the fund’s 2026-27 income tax return and retain supporting records. The election applies to all eligible assets and cannot be revoked. The election itself doesn’t need to be submitted to the ATO.

The decision should consider the whole portfolio. Where an asset’s market value is below its existing cost base, the reset may increase a future gain calculated for Division 296 purposes. Your adviser can help assess the pros and cons before the election is made.

Why these valuations matter

Accurate valuations help determine each member’s TSB and the proportion of earnings subject to Division 296 tax. Although unrealised capital gains are not directly taxed, rising asset values can push a member’s balance above the relevant thresholds and increase their exposure.

For SMSFs considering the CGT election, valuations as at 30 June 2026 also establish the starting cost base for Division 296 purposes. Trustees therefore need reliable, objective evidence to support the values adopted.

What SMSF Trustees should do now

Getting an updated, accurate market valuation can play an important role in establishing the starting point for Division 296 purposes – but your fund’s asset portfolio, member balances and broader financial position need to be considered before making a decision.

If your SMSF held property or other unlisted assets as of 30 June 2026, it’s worth booking in some time to discuss your options with your adviser.

If you don’t have an SMSF, but still want to chat about your super balance and the new rules, we are here to help! Leave your details to speak with an accountant or adviser, here.

Helpful glossary

CGT – Capital Gains Tax, in the context of a SMSF, is the tax applied to net profit when your fund sells an asset for more than the purchase price, less related expenses.

SMSF – Self-Managed Super Fund, a private retirement savings structure that you typically manage yourself.

LSB – Large super balance, typically between $3 million and $10 million.

VLSB – Very large super balance, typically over $10 million.

TSB – Total super balance, which is the combined value of all of your super interests and accounts as of 30 June each year.

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