Division 296 capital gains relief : should my SMSF opt in?

Should SMSFs opt in to the capital gains relief? It can be extremely valuable but can also backfire (particularly where some of the fund’s assets are in a loss position). We’ve unpacked the issues to think about before 30 June 2026.

What is the Division 296 capital gains relief?

For those impacted by Division 296 tax, either now or in the future, this relief is potentially very valuable. It allows SMSFs to use the 30 June 2026 market value of their assets to work out capital gains in the future, rather than the original purchase price (referred to as the “cost base”).  This is only for Division 296 tax. Normal fund tax will still be worked out exactly as it always is – using the normal cost base. It is only for SMSFs that formally opt in to the relief.

Actually opting in won’t happen for some time – the deadline is when the fund’s 2027 annual return is due (which could be nearly two years away). But those that do opt in will be relying on the 30 June 2026 asset values so it’s worth thinking now about whether the SMSF will opt in or not.

Division 296 capital gains relief : who should consider opting in? 

We’ve broken this decision down into several possible positions for SMSFs.

At least one member impacted by Division 296 tax now, all SMSF assets are in a gain position

This is the easy group. There are unlikely to be any material costs associated with opting in unless there are accounting changes required (see below) – so why not

As above but some SMSF assets are in a loss position

Opting in means using the 30 June 2026 value for all assets – you can’t pick and choose.

Consider an asset bought for $100 in 2024 that’s worth $70 at 30 June 2026. It’s sold for $90 in a few years’ time.  Even though the SMSF has still made a loss on the asset when it comes to the fund’s tax bill ($90 - $100 = a loss of $10), if it opted in back at 30 June 2026, it’s made a $20 capital gain for Division 296 purposes ($90 - $70). That will mean a higher Division 296 tax bill than would have been the case if the fund hadn’t opted in.

If the losses are high enough, SMSFs in this position could consider:

• Selling the assets in a loss position before we get to 30 June 2026. Unfortunately the fund can’t just buy the same assets back again – that’s considered a “wash sale” and considered tax avoidance. But selling them would mean the fund can use those losses to either reduce capital gains it pays tax on in 2025/26 or future capital gains (and Division 296 capital gains). 
• Not worrying about it (and opting in anyway) if the impact on Division 296 is small (eg the member doesn’t have much more than $3m in super or the gap between the cost base and market value now is small).
• Not opting in at all – for any assets.

This is something to think about now – it might prompt action before 30 June 2026.

No-one impacted by Division 296 but could be in the future

These funds can choose to opt in if they want to – and the same issues about losses would apply as above.

Remember someone with less than $3m today will be faced with Division 296 if their balance grows faster than the threshold because:

• Their investment returns are better than inflation.

• They inherit their spouse’s super as a pension.
• They make substantial contributions in the future (eg they sell a small business).

Some SMSFs in this group will definitely opt in.

Division 296 capital gains relief : who might not opt in?

Remember the capital gains relief is only useful if:

• someone is impacted by Division 296, and
• at the time, the fund sells assets worth a lot more at 30 June 2026 than their original purchase price.

So there’s a natural group of SMSFs that won’t bother. This will include funds that:

• Are unlikely to have anyone impacted by Division 296 for many years (by which time they expect to have sold most / all of their 30 June 2026 assets).
• May have someone who ends up being impacted by Division 296 but not by much (ie their balance isn’t expected to go much over the threshold or if it does, it’s likely to correspond to a time when they’re starting to draw down their super anyway).
• Don’t have significant capital gains built up in their portfolio already.

Some challenges to watch

Sometimes cost bases differ between the tax agent’s records and reporting provided by an investment platform. It will be the tax agent’s records that will be relied upon for this relief.

Sometimes an accountant will report investments via platforms or wraps (particularly Separately Managed Accounts or SMAs) as a single line investment. This will need to be broken down into its individual underlying investments to get the calculations right for opting in. If the platform can’t provide this level of reporting, it will be important to make sure the SMSF accountant can do so and that any additional costs this imposes still make opting in worthwhile. Remember – since the opt in happens at a “whole of fund” level, it’s not possible to opt in for assets held outside this portfolio unless the SMSF can opt in for the single line investments too.

Many SMSFs will opt into the capital gains relief for Division 296 tax. While this won’t happen for some time, some funds have issues to consider before 30 June 2026. Of course, capital gains relief is just one area of Division 296 and our resource centre covers many more (Division 296 Tax Explained: Updates, FAQs & Resources | Heffron)