Buried inside the Division 296 package that takes effect on 1 July 2026 is a one-off choice that many trustees have never heard of: an optional election to reset the cost base of a fund's Assets for the purposes of the new tax. It sounds technical, and it is, but it can materially affect how much Division 296 a member pays over the years ahead. Because the election is irrevocable and time-limited, trustees who might be affected need to understand what it does before the window closes. This article explains the essentials of the choice in plain terms.

Why the election exists

Division 296 applies an additional tax to a portion of Earnings on total super balances above $3 million, and in its enacted form it taxes realised earnings rather than paper gains. Without a transitional rule, a fund could face Division 296 on Capital growth that accrued long before the tax existed, simply because the gain happens to be realised after commencement. The cost base reset election is the mechanism designed to prevent that.

By allowing a fund to treat its assets as if reacquired at Market Value on 30 June 2026 for Division 296 purposes, the election draws a line under pre-commencement growth. Gains that built up before the regime started are, in effect, kept out of the Division 296 earnings calculation. It is a transitional fairness measure rather than a loophole, and it reflects the fact that the tax is new.

What the election actually does

The election resets the cost base of the fund's directly held CGT assets to their market value at 30 June 2026, but only for the Division 296 calculation. Importantly, it does not change the cost base used for the fund's ordinary income tax. When the fund eventually sells an asset, its normal Capital Gains Tax is still worked out using the original cost base, exactly as it would have been.

So the election creates two cost bases running in parallel: the ordinary one for the fund's own tax return, and a reset one used only to measure Division 296 earnings. That separation is the single most misunderstood feature of the measure, and grasping it is the key to understanding what the election can and cannot achieve for a member.

It is all-in, and irrevocable

The election is not something a fund can apply selectively to its winners. It applies to the fund's directly held CGT assets as a group, which means assets sitting in an unrealised loss position have their cost base reset too, potentially to a lower figure. Trustees cannot cherry-pick the assets that would benefit and leave the rest untouched.

It is also irrevocable. Once made, the election cannot be reversed, so a fund that elects and later wishes it had not is stuck with the consequences. That combination of all-in scope and permanence is why the decision needs careful modelling rather than a quick yes, and why it is not a choice to make casually near a lodgment deadline.

The deadline that matters

The election must be made by the due date of the fund's 2026–27 return. Miss that date and the opportunity is generally lost, because this is a one-off transitional choice tied to the start of the regime rather than an ongoing option that recurs each year.

Underpinning the election is a valuation question: the reset uses market value at 30 June 2026, so a fund needs supportable valuations of its assets as at that date. For listed securities that is straightforward, but for property and unlisted assets it may require independent valuation evidence. Leaving that to the last minute risks either a rushed valuation or a missed deadline, so the groundwork is best done early.

Who might it suit, and who not

Broadly, the election tends to favour funds whose assets carry significant unrealised gains that will be realised while Division 296 applies, because it keeps pre-2026 growth out of the calculation. A fund whose assets are mostly at or below their current cost base may get little benefit, and could even be worse off given the all-in nature of the reset.

There is no universal answer, and the right choice depends on a fund's specific asset mix, its members' balances relative to the threshold, and expectations about future realisations and growth. This is precisely the kind of decision that warrants modelling with a qualified adviser, ideally well before the 2026–27 return falls due, rather than a rule of thumb applied blindly.

A measure still settling

Because Division 296 and its transitional rules are new, some of the finer mechanics are being worked through by advisers and clarified by the ATO, and there has been genuine confusion in the profession about how the reset operates in particular cases. Trustees should treat general explanations, including this one, as a starting point and rely on the legislation and current ATO guidance for the detail.

That uncertainty is a reason for engagement, not paralysis. Understanding that the election exists, that it is irrevocable, all-in and deadline-bound, and that it affects only the Division 296 calculation, gives trustees the vocabulary to have a productive conversation with their Accountant and licensed adviser. This article is general information only and is not tax advice about any particular fund.

One reason the election deserves attention now, rather than closer to the deadline, is that the analysis and the valuations behind it take time to assemble. A fund may need independent valuations of property or unlisted assets as at 30 June 2026, projections of likely future realisations, and modelling of each member's position relative to the indexed threshold. Starting that work early gives trustees and their advisers room to reach a considered decision, and it avoids the twin risks of a rushed valuation and a missed lodgment date that would forfeit the choice for good.

Practical takeaway

Division 296's one-off election lets a fund reset its assets' cost base to market value at 30 June 2026 for the new tax only, keeping pre-commencement growth out of the calculation while leaving ordinary capital gains tax unchanged. It is all-in across the fund's directly held assets, irrevocable, and must be made by the due date of the 2026–27 return. Trustees who might benefit should obtain 30 June 2026 valuations and model the choice with a qualified adviser well ahead of the deadline.