Highlights

  • Division 296 imposes a 15% extra tax on earnings above the $3 million threshold, rising to 10% above $10 million.
  • Trustees who elect reset the cost base of chosen assets to their 30 June 2026 market value, locking in a new starting point.
  • Elections are all-or-nothing for each chosen asset and cannot be revoked once made by the trustee.
  • The deadline to lodge an election is May 2028, aligned with the due date for the 2026-27 annual return.

Trustees of self-managed superannuation funds with balances above $3 million face a consequential decision: which assets, if any, should receive a Division 296 cost base election before the May 2028 deadline. The choice carries lasting tax implications and cannot be undone.

What the Division 296 Election Does

Division 296 tax applies a 15% additional tax to superannuation earnings attributable to balances above $3 million. For balances above $10 million, the rate rises to an effective 10% on the additional tier. The tax operates separately from the standard 15% concessional rate.

An election under Division 296 resets the cost base of a nominated asset to its market value as at 30 June 2026. This means any capital gain accrued before that date is effectively crystallised under the old cost base, and future gains are calculated from the reset value. Jemma Sanderson of Cooper Partners has outlined the planning significance of this mechanism for members with large unrealised gains.

The All-or-Nothing Rule

An election must cover the entire asset. Trustees cannot elect for a partial share of a single holding. Once made, the election is irrevocable: there is no mechanism to withdraw or amend it after lodgement. This places significant weight on the initial asset review and valuation process.

Sanderson notes the election is made asset by asset, giving trustees flexibility over which holdings to include. A fund holding a mix of property, shares, and unlisted assets can elect on some while leaving others untouched. However, each individual decision is final.

Deadline and Process

The election deadline is May 2028, which aligns with the due date for lodging the 2026-27 SMSF annual return. Trustees do not lodge the election form with the ATO. Instead, the election is held within the fund's own records and the relevant earnings are reported through the annual return process.

Funds should obtain current market valuations for each asset under consideration before making elections. The 30 June 2026 market value determines the new cost base, so accurate valuations directly affect future tax calculations.