Division 296 starts 1 July. SMSFs holding $177 billion in property have one shot at today's market value

This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.

This article is general information only and does not constitute financial, tax, investment, or superannuation advice. Trustees should seek professional advice before making any irrevocable election under Division 296.

End of financial year for FY2025-26 lands today, Tuesday 30 June 2026. The familiar EOFY tasks sit on the desk: prepay where it makes sense, finalise the depreciation schedule, settle the repair-versus-improvement classifications, lodge after 1 July. For SMSF trustees holding property, today carries one task that no other date will let you redo.

From 1 July 2026, Division 296 turns on. The Better Targeted Super Concessions package gives SMSFs a single chance to reset the Division 296 cost base of every CGT asset they hold to its market value at 30 June 2026. After today, that valuation date is gone. Trustees can lodge the election itself with the 2026-27 annual return, but the price the law cares about is the market value at the close of business today.

Here is what passed, what the new tax actually does, and the five steps an SMSF landlord can still take inside the next 24 hours to keep the reset on the table.

What passed on 10 March 2026

The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 and the companion Superannuation (Building a Stronger and Fairer Super System) Imposition Act 2026 passed both houses of Parliament on 10 March 2026 and received Royal Assent on 13 March 2026. The package inserts a new Division 296 into the Income Tax Assessment Act 1997 and imposes the tax through the companion imposition Act.

The trigger is the member's total super balance, or TSB, at the end of the income year. For 2026-27 the threshold sits at $3 million. Where a member's TSB exceeds the threshold, the law calculates the proportion of the member's superannuation earnings that relates to the excess and applies an additional 15% tax to that proportion. The result is paid by the member personally, not by the fund itself, although the member can elect to have the fund release the amount.

The most important detail for SMSF property holders is what the final law calls "superannuation earnings." During consultation through 2023 and 2024, the proposed methodology drew the entire attention of the SMSF sector because it included unrealised gains on assets the fund still held at year end. After two years of pushback from the Tax Institute, the SMSF Association, and the federal Coalition, the government dropped the unrealised gains approach. The final law captures only realised earnings: interest, dividends, rent received during the year, and capital gains on assets that the fund actually sold during the income year. Increases in the market value of assets the fund still owns on 30 June are not part of the Division 296 earnings figure.

This is the policy change that makes today's valuation work matter. Once an asset is sold, the gain comes through the Division 296 earnings calculation. The cost-base reset is the lever that controls how much of the long-term embedded gain on a long-held property gets counted.

The cost-base reset in one paragraph

A small superannuation fund, which means an SMSF or a small APRA fund, can make a one-off election to reset the Division 296 cost base of every CGT asset it holds at 30 June 2026 to that asset's market value on that day. The reset operates only for Division 296 purposes. The standard CGT cost base under Part 3-1 of the Income Tax Assessment Act 1997 is untouched and continues to apply for ordinary income tax on the same fund's same asset. From 1 July 2026 onward, the fund effectively runs two parallel cost bases on every CGT asset: the original cost base for normal CGT, and the reset cost base for Division 296.

Two features of the election bite hard.

First, the election is fund-level and all-or-nothing. A trustee cannot reset the cost base of the Brisbane investment property and leave the parcel of CBA shares alone. Every CGT asset in the fund either gets the reset or none of them do.

Second, the election is irrevocable. Once lodged, it cannot be unwound, even if subsequent valuations show that a particular asset had actually fallen in value between original acquisition and 30 June 2026. An asset sitting on an unrealised loss that becomes a realised loss after 1 July 2026 would otherwise reduce Division 296 earnings. The election forfeits that benefit on every asset in the fund.

The election form is lodged with the SMSF's 2026-27 annual return, so trustees have time to model the decision. The valuation, however, is locked to 30 June 2026, which means the valuation evidence has to be gathered before that date passes.

What the valuation actually needs to be

The ATO's Guide to valuing SMSF assets sets out the existing rules for valuing fund assets at the end of each income year. Those rules carry through to the cost-base reset.

For listed securities, the closing market price on 30 June 2026 is sufficient. No separate report is needed because the price is observable.

For real property, the rules are tighter. The ATO accepts any of:

• A valuation from a qualified independent valuer;
• A kerbside appraisal from a licensed real estate agent supported by recent comparable sales;
• A registered valuer's report;
• An objective valuation that the trustee can defend if the ATO or the fund's auditor queries it.

For a cost-base reset that locks the Division 296 base for the life of the asset, practitioners are advising trustees toward the qualified independent valuation. A real estate agent appraisal that comes in higher than the actual sale price two months later is fine for a fund's annual financial statements; it is fragile if it has to support an irrevocable election seven years from now. SMSF auditors are already flagging that an appraisal more than 90 days old at 30 June, or one that does not contain comparable sales evidence, may not stand up under ATO scrutiny.

Business real property held by an SMSF and leased to a related party brings an additional layer of risk. The lease must be on arm's length terms, and the valuation that supports the reset will also support the related-party arm's length rent calculation. Trustees who use a soft valuation for one purpose and a stretched valuation for the other will not survive the ATO's compliance review for related party transactions.

The numbers SMSF landlords need to see

The ATO's December 2025 quarterly SMSF statistical report shows the sector at $1.06 trillion across 663,867 funds and 1,224,936 members.

Property sits inside that pool as follows: residential property $60.9 billion, non-residential property $116.7 billion. Together, property represents about $177.6 billion, or 17.5% of total SMSF assets. The bigger commercial slice reflects the long-running SMSF practice of holding a small business's premises as business real property, leased back to the operating company at arm's length rent.

The members most exposed to Division 296 are concentrated in the upper TSB tail. Treasury's original costing estimated 80,000 members in scope on day one, though the Tax Institute has noted that indexation in the final law slows the trajectory of bracket creep compared with the unindexed original. The members at risk are disproportionately SMSF trustees in the 60-and-older cohort, where balances have had four decades of compounding plus the legacy of pre-2017 non-concessional caps.

For a Sydney landlord who bought a residential investment property inside an SMSF in 2008 for $700,000, watched the property reach $1.6 million on the latest Cotality May 2026 Home Value Index, and now plans to hold for another seven years before drawing down in pension phase, the embedded $900,000 gain is the Division 296 problem the cost-base reset is designed to solve.

The worked example

Take an SMSF with two members and one investment property.

• Trustees: husband and wife, both 58.
• Combined TSB at 30 June 2026: $4.2 million.
• Major asset: a Brisbane house bought in 2014 for $620,000, recently valued at $1.05 million on a kerbside appraisal, and a careful registered valuer's report likely landing closer to $1.08 million.
• Listed equities: $2.4 million, a mix of large caps with various historical cost bases.
• Cash: $720,000.

Member 1's TSB is $2.4 million, below threshold. Member 2's TSB is $1.8 million, also below. No Division 296 today.

Fast-forward to 2032. Both members are now 64, both still in accumulation. The fund's TSB has compounded to $5.6 million. Member 1's TSB is $3.3 million; Member 2 is at $2.3 million. The fund sells the Brisbane property for $1.6 million.

Without the cost-base reset: Member 1's TSB is $300,000 above the $3 million threshold (10% of their TSB sits above threshold). The fund's realised CGT gain on the property is $980,000 ($1.6m sale less $620,000 original cost base). After standard one-third SMSF CGT discount on the part attributable to accumulation phase, the assessable gain feeds the Division 296 earnings calculation for the year. Member 1 wears the 15% Division 296 hit on roughly 10% of those earnings, layered on top of the regular 15% concessional rate.

With the cost-base reset: Member 1 still wears Division 296 on roughly 10% of the year's earnings. But the realised gain that feeds the calculation is the gain above the 30 June 2026 reset value of $1.08 million, not the gain above the original $620,000 cost. The Division 296 base is now $520,000 instead of $980,000. The standard CGT base for ordinary tax stays at $620,000, untouched.

The reset on this single property changes the Division 296 numerator for that year by close to half. The same logic applies on every long-held appreciated asset in every SMSF in scope. It is the property holdings that move the needle most, because property concentrates large embedded gains in a single asset that the fund cannot easily diversify away from.

Five steps before midnight

1. Engage a qualified independent valuer today. A registered valuer's report or, at minimum, a written real estate agent appraisal with three or more comparable sales from within the last 60 days, dated 30 June 2026. The cost of the valuation is a fund expense and is generally deductible in FY2025-26.
2. Refresh the listed securities holdings record at close of business. Take a screenshot of the broker's holdings page at 30 June close, or pull the holdings statement once it issues. The closing prices on the ASX last trading day of the financial year are the cost base for any listed shares the fund elects to reset.
3. List every CGT asset in the fund. The election is all-or-nothing, which means every CGT asset matters. Unlisted units in related trusts, collectibles, gold, fractional property platforms: each one needs a 30 June 2026 market value. Treat anything illiquid the same way as direct property.
4. Model the election asset by asset. Run the cost-base difference for every asset. The election is fund-level, so the question is whether the net benefit across the whole fund is positive. Where some assets are sitting on losses, the election forfeits the future Division 296 deduction on those losses. The model has to net those off.
5. Capture trustee minutes today. Trustees do not have to lodge the election until the 2026-27 SMSF annual return is due, but the deliberation about which valuations to commission and how the trustees defined market value on 30 June 2026 should be on the trustee record now, not reconstructed in 2027.

Where the reset interacts with depreciation

A new quantity surveyor report ordered today is deductible in FY2025-26. The capital works and Division 40 plant deductions over the next 40 years reduce the standard CGT cost base on the property at eventual sale. The Division 296 base, where the reset election is made, is locked at the 30 June 2026 market value and is not eroded by future depreciation. This is one of the few situations where the standard and Division 296 cost bases diverge meaningfully over time, and it generally tips the modelling toward making the election on long-held appreciated property with a fresh depreciation schedule attached.

How Propkt fits

Propkt's mortgage calculator is built for investor cash flow. SMSF property trustees use it for the same pre-purchase test that an individual investor uses: input the loan, the rent, the rates, the body corporate, and see whether the property pays for itself in the LRBA structure.

The expense tracking and rent management tools matter on a different timeline. Once Division 296 turns on, the rent that the SMSF receives is part of the realised earnings that feed the Division 296 numerator for any member above the $3 million threshold. Keeping the rent ledger clean, the expense apportionment defensible, and the year-end statements ready for the SMSF auditor is no longer just an audit requirement. It is the input to the Division 296 calculation that gets reported on the member's personal income tax return.

The reset is one-shot. The reporting that feeds it is yearly. Both have to be right.

The bottom line

Division 296 starts tomorrow. SMSFs hold $177.6 billion of property, the largest concentration of any single asset class in the sector outside listed equities. The cost-base reset election lets trustees lock in today's market value as the Division 296 base for every CGT asset they hold, including that property. The election is fund-level, all-or-nothing, and irrevocable, and the valuation has to reflect 30 June 2026.

The election form sits with the 2026-27 annual return. The valuation work cannot. SMSF landlords with long-held appreciated property and a member balance over or projected to cross $3 million should be on the phone to a qualified independent valuer today. Anything else is a forfeit.