Your SMSF, Your Assets, One Decision: The Capital Gains Relief Election Every Trustee Needs to Consider Now

Division 296 tax officially began today.

For the majority of SMSF trustees affected by it, the first year will pass without requiring dramatic action. Balances will be reported, earnings will be calculated, and in due course the ATO will issue assessments. The system will do its work.

But there is one decision, specific to SMSFs, irreversible, and with a hard deadline that deserves immediate attention. It is the capital gains tax relief election, and it is available only once.

If your SMSF holds assets that have grown substantially in value since they were purchased, this election could significantly reduce your Division 296 tax on future capital gains. Miss the window, and that opportunity is gone permanently.

Why This Relief Exists

Superannuation funds have been investing for their members for decades. Many SMSFs hold assets such as commercial property, a portfolio of blue-chip equities, that were purchased years or even decades ago and have grown considerably in value since.

Under Division 296, when these assets are eventually sold, the capital gain they generate will contribute to the Division 296 earnings calculation. Without any relief, that would mean paying Division 296 tax on growth that accumulated long before the tax existed, and long before anyone could have planned around it.

The legislation acknowledges this directly. The capital gains relief election allows an SMSF to record a new, adjusted cost base for all its assets, set at their market value as at 30 June 2026, for the purposes of Division 296 calculations only.

Critically: this does not change anything about how your SMSF calculates and pays its normal tax. The fund’s actual cost base, for the purposes of the standard 15% capital gains tax paid by the fund, remains unchanged. The adjusted cost base exists solely to reduce Division 296 earnings when assets are eventually sold.

How It Works in Practice

Consider an SMSF that purchased a commercial property in 2011 for $800,000. By 30 June 2026, the property has grown to $1.9 million. The fund subsequently sells it in 2029 for $2.4 million.

Without the election:

For Division 296 purposes, the capital gain is $1.6 million ($2.4m − $800k). After the standard one-third CGT discount available to super funds, approximately $1.07 million would be included in Division 296 earnings for that year.

With the election:

The adjusted cost base for Division 296 is reset to $1.9 million (the 30 June 2026 market value). The Division 296 capital gain is now only $500,000 ($2.4m − $1.9m). After the one-third discount, approximately $333,000 is included in Division 296 earnings.

The fund’s actual tax bill, calculated using the original $800,000 cost base, is unchanged. The election only affects Division 296.

In this scenario, the election reduces Division 296 earnings by around $740,000 for that one asset alone. For a member with a proportion of (say) 55% of earnings above $3 million, the Division 296 tax saving on that gain alone could be in the range of $60,000–$70,000.

The All-or-Nothing Constraint

Here is where the decision becomes genuinely complex.

The election is not asset-by-asset. If your SMSF elects the capital gains relief, it does so for every eligible asset in the fund at 30 June 2026. You cannot protect the gains on the property and exclude the shares that have fallen in value.

This matters because many SMSFs will have a mixed picture at 30 June 2026. Some assets will carry large, unrealised gains. Others may sit at or near their purchase price, or even in a loss position.

For assets currently at a loss, the election creates an adjusted cost base at today’s market value, which is lower than the original purchase price. If and when those assets recover and are sold for a profit, the Division 296 capital gain will be measured from the 30 June 2026 depressed value. That could mean more Division 296 earnings than if the election had not been made.

In other words, electing the relief is not a free lunch. It trades a reduction in Division 296 earnings on appreciated assets for a potential increase on assets currently below cost. The net effect depends entirely on the composition of your portfolio, how long you intend to hold each asset, and your expectations for their future performance.

Factoring In Carried-Forward Capital Losses

One element often overlooked: capital losses that have accumulated in your SMSF from prior years, even years before Division 296 existed, can be carried forward and applied against future Division 296 earnings when assets are sold.

A fund with significant carried-forward losses may find the election less critical than a fund with a clean slate. A fund with both large gains and large losses in different assets faces a more nuanced calculation.

Depending on the size of those losses, they may partially or fully offset the Division 296 impact of selling appreciated assets, which in turn affects how valuable the election actually is.

The Deadline Is Sooner Than You May Think

The election must be made via an approved form before the due date of the SMSF’s 2026/27 annual return.

For many SMSFs lodged through a tax agent, the due date is 15 May 2027. But for some funds, typically those whose prior year return was lodged late, or those who lodge without a tax agent, the deadline may be as early as 31 October 2026. That is just four months away.

Missing the deadline means missing the election entirely. There is no extension provision, no late lodgement cure. If the annual return is lodged after the due date without the election having been made in time, the opportunity is lost permanently.

If you are unsure when your SMSF’s annual return is due, check with your fund administrator or accountant now. Do not assume May.

Does Every Member Need to Be Affected by Division 296?

No. This is worth knowing for funds where only one member currently exceeds $3 million.

An SMSF can elect the capital gains relief even if none of its current members are subject to Division 296. A trustee might reasonably choose to do this if one member’s balance is approaching $3 million and is likely to exceed it in coming years, or if the fund holds assets with large unrealised gains that are likely to be sold once the threshold is crossed.

The election is made at the fund level, not the member level. Once made, it applies to all members, including any who join the fund in future years.

If You Move to a New SMSF

The relief is specific to the fund that makes the election. It does not follow an individual member.

If you are currently in an SMSF that has elected the relief and you later transfer to a new SMSF, the adjusted cost bases do not transfer with you. Conversely, if you join an existing SMSF that has already made the election, you benefit from the adjusted cost bases when those pre-2026 assets are eventually sold.

This has implications for any restructuring that involves closing one SMSF and establishing another. Getting the sequencing right matters.

How Non-SMSF Funds Are Treated

For members of large APRA-regulated funds, industry funds, retail super, corporate super etc: the relief operates differently and does not require any action from individual members.

These funds receive an automatic phased reduction in the capital gains included in Division 296 earnings for the first four years:

• 2026/27: Only 20% of capital gains count
• 2027/28: 40%
• 2028/29: 60%
• 2029/30: 80%
• 2030/31 onwards: 100%

SMSF trustees, by contrast, have to actively elect the relief or miss it entirely.

Questions to Work Through With Your Adviser

• What is the current unrealised gain or loss position of each asset? Your administrator should be able to produce this from the most recent valuation.
• What are your expected future gains across the portfolio? For a fund with a property expected to sell in three years at a large gain, the election has clear value.
• Does your fund hold any assets currently below their cost base? If so, the election resets the cost base to a lower value, which may increase Division 296 earnings if those assets recover.
• How do carried-forward capital losses affect the picture? Losses from prior years reduce Division 296 earnings independently of the election.
• When is your 2026/27 annual return due? Confirm this with your administrator now.

The Broader Point

The capital gains relief election is the most consequential immediate decision point for SMSF trustees under Division 296. It is time-limited, it is irrevocable, and it cannot be revisited once the deadline passes.

For some funds, the case for electing will be clear. For others, the decision requires more careful analysis. What it should never be is a decision made without looking at the full picture of the fund’s assets and the member’s broader circumstances.

At Hewison Private Wealth, we are actively working through this analysis with our SMSF clients. If you have not yet reviewed your position, or if you are uncertain whether your fund’s administrator has this on their radar, please get in touch. The deadline may be closer than you expect.

Contact Hewison Private Wealth: hewison.com.au/contact-form

This article is general in nature and does not constitute personal financial advice. It does not take into account your individual objectives, financial situation or needs. You should consider whether the information is appropriate to your circumstances and seek professional advice before acting.

Hewison & Associates Pty Ltd T/A Hewison Private Wealth ABN 51 006 082 257 | AFSL 227185