Under the proposed transitional rules regarding Div 296, SMSFs may have a small window, between now and June 30, to elect to reset the cost base of directly held assets to their market value as at 30 June 2026. For SMSFs with substantial unrealised capital gains, the implications of this strategy could be significant.
In simple terms, this means historical capital growth that occurred before the new regime commenced may effectively be quarantined; future Div 296 calculations would then only apply to growth occurring after 30 June 2026.
It’s important to note: this is not a disposal of the asset itself. Rather, the SMSF continues to own the asset, but for Div 296 purposes, the valuation at 30 June 2026 becomes the new reference point for future tax calculations.
Why the Cost Base Reset Matters
To illustrate the potential for tax savings using the cost base reset option, we’ll use a scenario where a commercial property purchased in 2010 for $900,000 is worth $2.4 million by 30 June 2026. If the property is later sold in 2032 for $3 million, one of two things happen:
- without a reset, the gain attributable to the asset would effectively be $2.1 million
- with a reset, the post-2026 gain may only be $600,000.
Key Takeaway: In practical terms, the cost base reset may allow trustees to “draw a line in the sand” before Div 296 begins. So, for long-held growth assets, this could materially reduce future tax exposure.
Which SMSF Assets Could Benefit Most from a Cost Base Reset?
The cost base reset is likely to be most valuable for SMSFs holding assets with large unrealised gains, including:
- commercial property
- long-held residential property
- development sites
- farmland
- private company shares
- business real property
- concentrated listed share portfolios, and
- illiquid growth assets
Key takeaway: The larger the accrued pre-2026 capital growth, the greater the potential value of the reset.
The Importance of Accurate Valuations
One of the most critical practical issues will be obtaining defensible market valuations as at 30 June 2026. Therefore, trustees may need formal or independent valuations for property, private trusts, unlisted shares, related-party investments, business interests, and other non-market assets.
For SMSFs holding complex or illiquid investments, valuation scrutiny from the ATO is expected to increase significantly under Div 296. It’s also worth noting that waiting until the last minute for a valuation may create problems because valuers may face substantial demand, disputes over market value could arise later, and incomplete documentation may weaken future tax positions
Key takeaway: For many funds, valuation preparation should begin well before June 2026.
The Election May Be Irrevocable
Current commentary suggests the reset election is expected to be optional, once-only, and irrevocable. This means trustees may not be able to selectively reverse the decision later if circumstances change. Further, the election may apply across all directly-held assets, rather than allowing trustees to choose individual investments selectively.
This creates strategic complexity. For example, assets with substantial unrealised gains may benefit from the reset but assets currently in loss positions may become disadvantaged if their cost base is reset downward. As a result, modelling the impact across the entire SMSF portfolio becomes essential.
The Reset May Not Apply to Indirect Holdings
One important limitation to the proposed reset is that it appears primarily targeted at directly held assets. This means investments held indirectly through unit trusts, companies, managed funds, or other structures may not receive the same treatment.
For SMSFs using layered investment structures, this distinction could become highly important. Therefore, trustees may need to review whether existing holding structures remain optimal before 30 June 2026.
Warning: Administrative Complexity is Likely to Increase
Another major consideration is that the reset may apply only for Div 296 calculations, and not for standard capital gains tax purposes within the SMSF.
This could create parallel accounting systems:
- one cost base for normal SMSF tax accounting
- and another for Division 296 purposes.
For trustees with sophisticated portfolios, this may increase:
- compliance costs
- accounting complexity
- valuation requirements
- ongoing record-keeping obligations
Should SMSF Investors Reset Their Cost Bases?
There is no ‘right’ answer for all SMSF Funds. Rather, for some investors, the reset may provide a substantial long-term tax benefit, while others may see a better outcome from alternative strategies, including:
- restructuring investments
- moving certain growth assets outside super
- equalising member balances between spouses
- partial disposals before 30 June 2026
- or rethinking future contribution strategies
The best approach will depend on various factors, including:
- the size of unrealised gains
- liquidity needs
- retirement timing
- estate planning objectives
- member balances
- and the type of assets held
One thing that is universal to all SMSFs is: Div 296 is shifting the strategic role of superannuation itself. That’s because, historically, many investors focused on maximising growth inside super at all costs. Going forward, some investors may rather hold aggressive growth investments outside their super and rather, use their super more strategically as a retirement income environment, a defensive allocation vehicle, or a tax-effective income structure.
What SMSF Trustees Should Do
SMSF trustees should consider:
- reviewing unrealised gains across all assets
- obtaining updated valuations
- modelling Division 296 exposure
- assessing liquidity for future tax liabilities
- reviewing ownership structures
- and seeking specialist SMSF and tax advice
For many high-balance SMSFs, the next 12 months may represent one of the most important strategic planning windows in many years. The proposed cost base reset is not simply an administrative technicality, but may become one of the defining planning opportunities of the Division 296 era.
How to Reset the Cost Base of SMSF Assets
Step 1. Obtain Market Valuations Before 30 June 2026
Trustees will need defensible market valuations for all directly held assets as at 30 June 2026. For property-heavy SMSFs, many advisers are already recommending arranging valuations well before June 2026 because demand for valuers may surge.
Step 2. Decide Whether to Elect Into the Reset
The election is expected to be optional, once-only, and irrevocable. It also appears to apply to all directly held assets in the SMSF, not selected assets individually.
This matters because assets with large unrealised gains may benefit significantly, but assets currently in a loss position could become disadvantaged if their cost base is reset downward.
Step 3. Lodge the Election with the ATO
Current commentary suggests the election would likely be made either through the SMSF annual return process for 2026–27 or by an approved ATO form or election mechanism.
However, the practical work must be completed by 30 June 2026 because the reset depends on the asset values at that specific date.
Step 4. Maintain Separate Records
One important complication is that the reset appears to apply only for Division 296 calculations and not for ordinary CGT rules within the SMSF.
That means trustees may need one set of records for standard SMSF tax accounting and another for Division 296 calculations. For complex funds, this could materially increase administration and accounting complexity.
Note: Important Caveats regarding the Cost Base Reset
The ‘transition’ legislation and ATO guidance are still evolving, and several technical areas remain uncertain. Some important considerations include:
- how private asset valuations will be challenged,
- treatment of indirect holdings through trusts or companies,
- actuarial allocation between members,
- liquidity planning for future Division 296 liabilities,
- and how future regulations may modify implementation details.
Several advisers have also warned that restructuring or selling certain assets before 30 June 2026 may sometimes produce a better long-term outcome than relying on the reset itself.
As always, seek the advice of an experienced financial expert.
