Division 296 Capital Gains Relief: Should Your SMSF Opt In?

Division 296 Capital Gains Relief: Should Your SMSF Opt In?

With Division 296 on the horizon, many SMSF trustees are asking whether opting into the capital gains relief is the right move. While the relief can be highly beneficial, it’s not always straightforward and may have unintended consequences, particularly where some investments are sitting at a loss.

 

What is the capital gains relief?

This measure allows eligible SMSFs to reset the cost base of their assets to market value as at 30 June 2026—but only for Division 296 tax purposes. Importantly, standard fund tax calculations will continue to use the original purchase price.

Although the formal decision to opt in isn’t required until the fund’s 2027 annual return, the calculations will depend on asset values as at 30 June 2026. That makes it important to start planning now.

 

When opting in may make sense

Opting in is generally beneficial where:

• A member is (or will be) subject to Division 296 tax; and
• The fund holds assets with significant unrealised gains.

In these cases, resetting the cost base could reduce future Division 296 tax liabilities.

 

Where caution is needed

A key limitation is that the decision applies to all assets in the fund—you can’t pick and choose.

This can create issues where some investments are in a loss position. For example, an asset that has fallen in value before 30 June 2026 could still generate a taxable gain under Division 296 rules if it recovers later, even if the fund makes an overall loss from its original purchase price.

Key considerations before 30 June 2026

SMSFs should carefully review their position, particularly where:

• Some assets are currently below their purchase price
• The impact of Division 296 is expected to be minimal
• The fund balance may exceed $3 million in future due to growth, contributions, or inheritance

In some cases, trustees may consider restructuring or realising losses before 30 June 2026—although care is needed to avoid anti-avoidance rules such as wash sales.

 

When opting in may not be worthwhile

Opting in may be less relevant where:

• Members are unlikely to be affected by Division 296 in the foreseeable future
• The fund has limited unrealised gains
• Assets are expected to be sold before Division 296 becomes relevant

 

Practical challenges

There are also some administrative considerations, including:

• Ensuring accurate cost base records (tax agent records will apply)
• Breaking down investment platforms or managed accounts into underlying assets if required
• Assessing whether additional compliance or accounting costs outweigh the benefits

 

Final thoughts

While the ability to reset asset values can be valuable, the decision to opt in requires careful analysis. With 30 June 2026 approaching, now is the time to review your SMSF’s position and ensure you’re making an informed choice.

 

 

 

This article is for general information only. It does not constitute financial product advice and has been prepared without taking into account any individual’s personal objectives, situation or needs. It is not intended to be a complete summary of the issues and should not be relied upon without seeking advice specific to your circumstances.