Cost Base Reset for Division 296: What You Need to Know About the New Super Tax

A significant tax change is now law. From 1 July 2026, individuals with a Total Superannuation Balance (TSB) above $3 million will pay an additional 15 per cent tax on the proportion of their superannuation earnings attributable to balances above that threshold. For those with balances above $10 million, a further 10 per cent applies to earnings on the portion above that level.

Embedded in the legislation is a transitional provision that is relevant to many SMSF members, particularly funds with assets that have appreciated significantly over time. This provision allows members to reset asset cost bases, potentially reducing the future capital gains tax (CGT) liability that would otherwise apply under this regime. But, acting requires understanding both how the mechanism works and its limitations. Importantly, this is a one-time opportunity and time to act is limited, so understanding it now, before the window closes, matters.

Do you need to be above $3m to elect the reset?

The election to reset asset cost bases is available to any complying SMSF with six or fewer members. It does not require any member to be above, or ever reach, the $3 million threshold, only that the fund holds directly owned CGT assets.

Fund holders should consider if their fund is likely to exceed $3 million in the future, as it may be prudent to take advantage of the one-off election and reset cost bases now.

Why pre-2026 gains are now a problem

Division 296 taxes the proportion of a member’s superannuation earnings attributable to balances above $3 million at an additional 15 per cent. Capital gains on assets sold within the fund form part of that earnings calculation. For many SMSFs, assets such as property or shares have been held for a decade or more and carry significant unrealised gains. Without the cost base reset, those historical gains will attract Division 296 tax, in addition to regular capital gains tax, when the assets are eventually sold.

How the CGT cost base reset works

The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 allows eligible SMSFs to elect to treat the market value of their CGT assets as at 30 June 2026 as the new cost base for Division 296 purposes. Any gain that accrued before that date is effectively quarantined from the Division 296 calculation. Only growth from 1 July 2026 onwards will be included when an asset is eventually sold.

The all-or-nothing rule

The election is made at the fund level and must cover every CGT asset held directly by the fund on 30 June 2026. It cannot be applied selectively, which means a fund cannot reset assets with large unrealised gains while excluding others. Where a fund holds a mix of appreciated and depreciated assets, the effect of the election on the full portfolio is what matters. Once made, the election cannot be revoked.

The reset covers assets owned directly by the fund. Assets held through other structures, such as unit trusts, are treated differently and should be considered separately.

For Division 296 Purposes Only

It is important to understand that the reset applies for Division 296 purposes only. When a fund sells an asset, two separate calculations apply: the ordinary CGT calculation (which continues to use the original cost base as it always has) and the Division 296 earnings calculation (which uses the reset cost base from 30 June 2026). The two are independent so resetting the Division 296 cost base has no effect on the fund’s ordinary CGT position.

The example below illustrates how the two calculations sit separately for a single asset.

Source: Evans and Partners 

That gain reduction translates to a significant tax saving. Here is how the numbers work for a member with a $5m total superannuation balance and assuming that the asset has been held for at least 12 months.

Source: Evans and Partners 

The risk of resetting a depreciated asset

Because the election is all-or-nothing, funds holding assets that have fallen in value since purchase face a specific risk. Resetting a depreciated asset locks in a lower cost base for Division 296 purposes, and any resulting Division 296 loss in the year of sale cannot be carried forward to offset future earnings.

Consider a fund that purchased an asset for $300,000. At 30 June 2026 that asset is worth $200,000. The fund elects the reset, locking in a cost base of $200,000 for Division 296 purposes. The $100,000 loss relative to the original purchase price is permanently locked out of the Division 296 calculation and cannot be carried forward or recovered.

This is distinct from ordinary capital losses under Division 296, which may still carry forward under the usual rules.

When to act and what to do

The cost base reset is a one-time opportunity, and your decision hinges on two dates:

• 30 June 2026: Valuation date. The reset will use 30 June 2026 asset prices. Your decision depends entirely on knowing what your fund holds and what it is worth at that point in time.
• 30 June 2027 tax return: Lodgement deadline. You must make the election in your fund’s 2026–27 tax return by 30 June 2027. This is a one-off opportunity, so we recommend acting early rather than waiting until the deadline.

Before 30 June 2026, you should:

• Obtain current market valuations for all directly held CGT assets.
• Identify any assets with unrealised losses. The election is all-or-nothing and applies at fund level, so your loss assets are captured too.
• Review whether your balance is above $3m or likely to reach it. The reset only has value if Division 296 applies to you.

Please speak with your adviser to discuss whether resetting cost bases is suitable for you. It is important to consider multiple outcomes as the election cannot be revoked once made.

For practical guidance and the most current information, visit our Division 296 Tax Page.

Disclaimer

This article was prepared by Evans and Partners Pty Limited AFSL 318075. Any advice is general advice only and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice, you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Any taxation information is general and should only be used as a guide. The proposed Division 296 legislation has not yet been finalised; this article reflects publicly available information as at February 2026. The defined benefit TSB calculation methodology referenced is subject to further government consultation and has not yet been legislated.