Welcome to the May Adviser query of the month and technical briefing, an update of recent key technical developments for the period from 27 March 2026 to 28 April 2026, including the Government’s proposal to simplify the work-related tax deduction rules by offering an instant $1,000 deduction.
In this edition, the Adviser query of the month examines the Division 296 cost base reset election for self-managed super funds (SMSFs) and small APRA funds, and its relevance for those not immediately affected by the new tax.
Adviser query of the month
Question
Is the cost base reset for SMSFs for Division 296 tax purposes limited to those SMSFs that have a member that will have a total super balance (TSB) above $3 million and be subject to the tax?
Answer
No, the reset is available to all small super funds (i.e. SMSFs and small APRA funds (SAFs) irrespective of member TSB.
Objective of cost base reset
The objective of the cost base reset for small super funds is to limit Division 296 tax to earnings accrued from the commencement date of 1 July 2026, including capital gains.
Why apply the cost base reset if all members have a balance below $3 million?
A key planning consideration will be whether any members of the SMSF/SAF will be subject to Division 296 tax at any point in the future.
Looking ahead to see if any members TSB might exceed $3 million (subject to indexation) in the future is an important consideration.
Common factors that increase an individual’s TSB include:
- Receipt of a death benefit pension – an example could be where each member of a couple currently has an account-based pension (ABP) worth $2 million. Where one member passes away, the intention is to take the death benefit as a pension and move their own ABP back to the accumulation phase. Assuming no change in values, the TSB of the surviving member of the couple would be $4 million and in-scope for Division 296 tax
- Contributions – although individuals with high TSBs (i.e. $2.1 million or more at 30 June 2026 for 2026-27) will be unable to make non-concessional contributions, there are other types of contributions that individuals with high TSBs can make, including:
- Concessional contributions (i.e. employer and personal deductible contributions)
- Small business CGT contributions
- Downsizer contributions
Note: Personal injury contributions can also be made irrespective of TSB. While personal injury contributions might increase someone’s TSB above the $3 million threshold, individuals who have made a personal injury contribution (at any time) are excluded from Division 296 tax
- Investment returns – when the returns from investments are greater than the outgoings from the super fund, the individuals TSB will increase
Key features of the cost base reset
Technicalities of the cost base reset include:
- Where the reset occurs:
- The first element of the cost base or reduced cost base is taken to be the asset's market value as at the end of 30 June 2026
- Each other element of the cost base or reduced cost base is adjusted to nil at the end of 30 June 2026, disregarding amounts that formed part of the cost base on or before that day
- No indexation is included in any elements of the adjusted cost base for Division 296 purposes, meaning the indexation method cannot be used when calculating capital gains or losses for eligible CGT assets after this adjustment
- Subsequent events affecting the asset's cost base (e.g., maintenance costs) can still be added to the adjusted cost base
- The election applies to all CGT assets held by the fund at the end of 30 June 2026. It can’t be applied to some of the assets held at that time
- This adjustment applies for Division 296 purposes only. It does not affect the cost base of the asset under the existing capital gains tax rules. Where the election is made, the fund will be required to have two cost bases for each asset
- The adjustment does not trigger a CGT event or change the acquisition date of the asset, thus not impacting the 12-month eligibility period for the 1/3rd CGT discount
- If the fund is in a net capital loss position and the fund elects to reset the cost base of all assets, the capital loss cannot be carried forward and used in a future year
Administration requirements for making the election:
- The choice must be made in the approved form
- It must be made by the due date for the funds 2026-27 income tax return
- The election cannot be revoked
- The trustee must keep records of the choice and the adjusted cost base for each CGT asset for five years after the last affected CGT event
CGT concessions for large super funds and pooled superannuation trusts
Large super funds (e.g. retail super funds) and pooled superannuation trusts (PSTs) don’t have the option to reset the cost base of the assets held at 30 June 2026. However, they do receive an alternative concession for calculating net capital gains for Division 296 tax purposes.
Large super funds and PSTs will have a four-year transitional period (2026-27 through to 2029-30) whereby any net capital gains realised during the year will be reduced. During these four years, the net capital gain will be multiplied by a factor relevant to that year.
The following proposed factors have been released in draft regulations:
Year of CGT event | Factor |
2026-27 | 0.2 |
2027-28 | 0.4 |
2028-29 | 0.6 |
2029-30 | 0.8 |
As an example, in the 2026-27 financial year a super fund has a gross capital gain of $150,000 after applying capital losses.
The fund is entitled to the 1/3rd discount as the assets have been held for at least 12-months. After applying this discount, the net capital gain is $100,000.
For Division 296 tax purposes, this net capital gain is then multiplied by 0.2, resulting in an earnings amount of $20,000.