Capital gains relief under Div 296 ($3mil tax)– Should my SMSF opt in or not?

Capital gains built up prior to 30 June 2026 can be excluded from the calculation of Division 296 earnings when an SMSF elects to opt in. This measure applies only to the calculation of Division 296 earnings, not to the calculation of capital gains for tax purposes. Your fund accountant is required to maintain two separate cost bases for your fund’s assets if your SMSF elects to opt in.

How does my SMSF Opt In?

A non-revocable election is made at the fund level, not the member level, to opt in. The election must be made on the approved form, which is not required to be lodged with the ATO but must be retained in the fund’s records. The details of the approved form have not been released at the time of writing this article.

The cost base of SMSF capital gain assets is reset to market value as at 30 June 2026 for Div 296 purposes only. It applies to all assets; unlike the 2017 CGT relief, the fund cannot select which assets receive relief. It will apply to all assets that would have realised a capital gain or loss if sold at 30 June 2026.

Generally, an SMSF must opt in by 15 May 2028 to obtain this relief; it is not automatic. The date is determined by an SMSF’s due date for lodging its 2026/27 annual return. Some funds will have a different lodgement date and may need to bring that date forward. For example, late lodgement of prior-year annual returns may mean the fund’s annual return due date shifts from 15 May 2028 to 31 October 2027.

Can my SMSF Opt In?

Any SMSF, regardless of whether it has existing members who do not exceed the $3 million threshold, can elect to opt in. If your SMSF does not opt in by the deadline, there is no second chance or extension of time to make this election.  Future members can also benefit from an SMSF that elects to opt in.

Should my SMSF Opt In?

It is pretty obvious that SMSFs with at least one member whose total superannuation balance (TSB) exceeds $3 million should carefully consider whether to opt in.

Other considerations include:

• An SMSF with capital losses – Capital losses cannot be excluded when opting in; the calculation of Div 296 earnings may include a non-existent capital gain on an asset in a loss position at 30 June 2026 (the cost base is reduced), which recovers to its purchase cost when sold. For example, 1,000 shares in White Energy Company Ltd were purchased for $9,450 in 2012. The market value at 30 June 2026 is $250.  The reset cost base is $250.  The shares recovered significantly and were sold in June 2028 for $9,450. This results in a $6,133 capital gain ($9,200 – $3,067 (1/3 discount)) being included in the calculation of Div 296 earnings. For tax purposes, there was no capital gain or loss.
• An SMSF has no members impacted by Div 296 at 30 June 2026 – The fund is still able to opt in, which may protect against a change in the member’s future TSB as a result of inheriting super in the future from their spouse or if their balance grows faster than expected and eventually exceeds the $3 million threshold.

What must my SMSF do before 30 June 2026?

Obtain up-to-date market valuations of the fund’s assets at or near 30 June 2026. This is crucial for funds that own property, units held in a unit trust, or shares in a company, as well as for other assets without readily available public markets. Property leased to fund members or other related parties requires objective, supportable evidence of market valuation.

Review assets in a loss position to determine whether they should be sold prior to 30 June 2026. A careful assessment should be made of the likelihood that market value will recover in the future. If the impact of capital losses is small, it may be worth the fund opting in anyway.

How have your SMSF assets been reported?

Some accountants have recorded investments from platforms, wrap accounts and Separately Managed Accounts (SMAs) as a single line item in Class, without recording the details of each asset. When an SMSF is in full pension mode, capital gains are disregarded, and the cost base of the assets is irrelevant because no tax applies. However, when calculating Div 296, tax-exempt pension income is included, and it may be crucial for a fund to opt in to obtain CGT relief. The cost of your accountant breaking out the cost bases should be considered to ensure the benefit of opting in is worthwhile.

If the fund holds property and shares, as well as a single-item investment, this may affect the fund’s decision to opt in, since the election applies to the whole fund.  You should be able to confirm if your SMSF has any single-line investments by confirming with your accountant.