Key Highlights

•  Based on current ATO guidance, the election is expected to be made on a standalone form kept in fund records, not on the SMSF annual return.

•  Division 296 applies at 15 per cent above $3 million and a further 10 per cent above $10 million of total super balance.

•  The ATO had not yet released the form, so trustees should secure supportable 30 June 2026 valuations.

The new tax on earnings attributable to large superannuation balances is now part of the landscape for SMSF trustees, and attention has moved from whether it will happen to how it will be administered. One practical question has just received a clearer answer: where a fund's election to adjust the cost base of its assets for Division 296 purposes will be recorded.

Speaking at The Tax Institute's National Superannuation Conference in Melbourne, Cooper Partners director Jemma Sanderson said that, based on current ATO guidance, the election will be made on a standalone form kept with the fund's records rather than on the SMSF annual return. She described this as a practical result for the sector.

What Division 296 does

The ATO's guidance on how Division 296 tax is calculated, last updated on 29 June 2026, explains that the tax applies at 15 per cent to taxable super earnings attributable to the part of a member's total super balance reference amount above the large super balance threshold. A further 10 per cent applies to earnings attributable to the part above the very large super balance threshold. The ATO's key super rates and thresholds list these thresholds for 2026–27 as $3 million and $10 million respectively.

Transitional rules apply in the first year. For 2026–27, the ATO says only the total super balance at 30 June 2027 is considered. From 2027–28, the reference amount is the greater of the balance just before the start of the income year and the balance at the end of it. Balances that briefly exceed a threshold during the year do not count if neither test point is above it. Outstanding LRBA amounts are not included in total super balance for Division 296 purposes.

Most funds calculate Division 296 fund earnings and attribute a share to each member. SMSFs will report each member's relevant earnings through the SMSF annual return, and the ATO will then calculate the tax and issue assessments. The ATO has said it is drafting a law companion ruling on fund earnings calculations.

The cost-base election in practice

Because the new regime looks at earnings from 1 July 2026, the law allows funds to adjust the cost base of assets held at 30 June 2026 so that gains accrued before the tax began are not swept into Division 296 earnings. Sanderson's comments cover several practical points:

  • The election will be on a separate form, not the SMSF annual return.
  • The form will not be lodged with the ATO; it will be kept in the fund's records.
  • The fund's auditor is expected to ask for a copy.
  • The ATO had not yet released the form at the time of the conference.
  • Once available, the election can be made at any time up to the lodgment due date for the fund's 2026–27 income year.

Trustees should treat these points as professional commentary on emerging ATO guidance rather than settled administrative practice until the ATO publishes the form and its instructions.

Practical considerations for trustees

The most important practical step is evidence. The adjustment relates to asset values at 30 June 2026, so trustees should make sure the fund holds supportable market valuations at that date, particularly for property, unlisted unit trusts and other assets without a quoted price. A valuation obtained now and documented clearly will be far easier to defend than one reconstructed in a year's time.

Trustees should also confirm which members are likely to be affected. A member well below $3 million may have no Division 296 exposure in 2026–27, while a member near the threshold may want to understand how fund earnings and contributions could move their balance by 30 June 2027.

Because many SMSFs lodge through a tax agent's lodgment program, the 2026–27 return will often be due well into 2028. That gives time, but it also creates a risk that the election is forgotten. Diarising the decision and keeping the signed form with the fund's minutes is a simple safeguard.

Hypothetical example

A hypothetical fund holds a commercial property bought for $900,000 that was valued at $1.6 million at 30 June 2026. If the trustees make the election, the cost base used for Division 296 earnings would reflect the 30 June 2026 value, so only growth after that date would be relevant to Division 296. The ordinary income tax treatment of the fund's capital gain is a separate question that trustees should discuss with their accountant.

Takeaway

The Division 296 cost-base election appears set to be a records-based decision rather than a line on the annual return. Trustees with members near or above $3 million should secure well-documented 30 June 2026 valuations now, watch for the ATO's form and instructions, and make sure their auditor and accountant are aligned on the timing.