Division 296 CGT Election – in detail

From time to time enquiries are made, which are of general interest, such as an enquiry as to the CGT election which applies for the purposes of the new Division 296 – this is the Division of the Income Tax Assessment Act 1997 which imposes (on the member and not the fund) tax at the rate of 15% on that portion of the superannuation earnings, being earnings derived on or after 1 July 2026, which are attributable to the portion of the total superannuation balance of the member, which exceeds $3m at the rate of 15% and, an additional tax, at the rate of 10% on that portion of the superannuation earnings, which are attributable to the portion of the total superannuation balance which exceeds $10m.

The Division 296 CGT Election permits the trustee to elect – in respect of CGT assets of the SMSF which are held on 30 June 2026 – that the cost base of those assets be adjusted to their market value as at 30 June 2026.  Without this election, Division 296 tax could be imposed on gains which were derived on or after 1 July 2026 but which accrued in part before 1 July 2026. This election only relates to the calculation of superannuation earnings for the purposes of Division 296 tax; it has no impact on the calculation of taxable income of the SMSF.

However, this election, if made, must apply to all CGT assets held on 30 June 2026.  So, when the election is required to be made – at or before the 2025/26 SMSF annual return is required to be lodged – it must apply to all CGT assets held on 30 June 2026 or none of those assets.

If a SMSF trustee wishes to apply the election to some assets, but not to all CGT assets – then the SMSF trustee must, before 30 June 2026 dispose of those assets to which the trustee does not wish to apply the election.

Consequently, the practical result is that the SMSF trustee must determine before 30 June 2026 and possibly well before that date, in order to provide an allowance for the time to effect a disposal, those CGT assets for which the trustee does not wish to make an election so that the SMSF trustee is in a position to make an election for the rest of the CGT assets.

So, the answer is that while the election must formally be made on or before the due date to lodge the 2025/26 annual return for the SMSF, the trustee, must in practice, make the election before 30 June 2026.

A further issue arises if the trustee wishes to make the election in respect of the CGT assets held on 30 June 2026 and before the election is formally made, the trustee disposes of one or more of those assets.  It seems in such a case the trustee will be precluded from making the CGT election – as when the election is later made, the election cannot apply to all CGT assets held on 30 June 2026 so, the election will be ineffective.   On this reasoning, the trustee will have to make the CGT election before the first disposal of a CGT asset which was held on 30 June 2026.

There are three significant conclusions:

• first, if an SMSF trustee wishes to make the CGT election for some but not all CGT assets held on 30 June 2026 – those assets which the SMSF trustee wishes to make no election must be disposed of before 30 June 2026;

• second, as disposing of a CGT asset held on 30 June 2026 for which an election is to be made, then the election must be made before the asset there is a disposal of that asset on or after 1 July 2026; and

• deciding whether to make an election for the purposes of Division 296 could be a complex matter and most likely requires professional advice and requires the consideration of both the income tax consequences as well as the Division 296 tax consequences of the election.