You have spent years building your super balance. Some of that has gone into property inside your SMSF, some into shares, some sitting in accumulation waiting. Now a new tax applies to balances above $3 million, and the first measurement date is 30 June 2027. The window to act on the most time-sensitive decisions has already opened.
This post sets out the mechanics, what they mean for SMSF members holding property, and the concrete steps worth discussing with your SMSF specialist accountant before 30 June 2027.
How Division 296 Works
In March 2026, Parliament passed the Building a Stronger and Fairer Super System Bill, introducing a new tax regime commonly referred to as Division 296. From 1 July 2026, Division 296 tax will reduce the tax concessions available to individuals through their super.
Division 296 tax applies at a rate of 15% to your taxable super earnings, broadly a portion of the earnings on all your super interests determined by the extent that your total super balance (TSB) exceeds the large super balance threshold (LSBT). For the 2026-27 income year, the LSBT is $3 million and the VLSBT is $10 million.
An additional rate of 10% will also apply to your very large super balance earnings component, broadly the portion of earnings on all your super interests determined by the extent that your TSB exceeds the very large super balance threshold (VLSBT).
Division 296 remains a personal tax, separate from the existing super fund tax, and applies to individuals rather than superannuation funds. An individual may be affected if their TSB exceeds $3 million, measured across all superannuation interests, including SMSFs, APRA regulated funds, and defined benefit interests.
Unrealised gains are excluded. Following industry feedback, the final legislation does not tax unrealised capital gains. Instead, earnings are calculated using a realised earnings approach.
LRBA borrowings do not inflate your TSB. Limited recourse borrowing arrangement (LRBA) amounts are disregarded when calculating your TSB for Division 296 tax purposes. That matters if your SMSF holds property under an LRBA, because the outstanding loan does not gross up the balance figure used to assess the tax.
The first assessment cycle is also important to understand. In the first financial year (2026-27), the tax will be applied based on the TSB at the end of the financial year (30 June 2027). This is a transitional arrangement. In future financial years, the higher of the TSB on the previous 30 June and year-end TSB will be used. From 1 July 2027 onwards, withdrawing super during the financial year will not necessarily prevent Division 296 tax from applying, as balances both immediately prior to the start and at the end of the financial year are taken into account.
See the ATO's full explanation at ato.gov.au.
The CGT Cost Base Election: The Decision SMSFs Cannot Undo
For SMSF members holding property or other appreciating assets, there is a one-time election that deserves serious attention.
The Division 296 CGT election permits the trustee to elect, in respect of CGT assets of the SMSF 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. In practical terms: if your SMSF bought a property in 2014 and it has grown significantly since, a large portion of that appreciation happened before Division 296 existed. The election can quarantine that pre-commencement growth.
The catch is that the election must apply to all CGT assets held in the SMSF on 30 June 2026, or none of them. You cannot pick and choose. You cannot elect to reset the cost base on your property but not your shares, or on your growth stocks but not your income assets. It is every asset or no asset.
The election, where taken, applies to all CGT assets held at 30 June 2026, is irrevocable, and must be effected by the due date for lodgement of the fund's 2027 SMSF Annual Return.
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. The fund maintains two sets of cost base records going forward, one for ordinary CGT and one for Division 296 purposes.
Property valuations matter here. For hard-to-value assets such as commercial property, unlisted investments, and units in related trusts, independent valuations should be arranged specifically referencing 30 June 2026 as the valuation date. The ATO has flagged that asset values at 30 June 2026 will be subject to additional scrutiny, and valuations that are not properly documented and independently supported may be challenged.
The ATO's guidance on the CGT election for SMSFs is at ato.gov.au.
Trade-Offs to Weigh
Division 296 changes the maths for high-balance SMSF members in a few specific ways.
Pension phase is no longer a complete shelter above $3 million. While earnings on a retirement account (allocated pension) are generally taxed at 0% up to a balance of $3 million, Division 296 introduces additional tax on earnings related to the portion of your total super balance above $3 million. The Transfer Balance Cap for 2026-27 is $2.1 million per the ATO (via cfs.com.au), so a member with a $3.5 million balance moving into pension phase still faces Division 296 on the excess.
Illiquid SMSF assets create a cash flow problem. Liquidity planning is critical, especially where super assets are illiquid. A Division 296 assessment is issued to the individual, not the fund, and is generally payable within 84 days of the notice. If the bulk of your SMSF is in property, meeting that payment from inside the fund means selling assets or drawing down cash reserves, both of which have their own implications.
Multi-member funds need careful allocation. How earnings are allocated between members in a multi-member SMSF is subject to further ATO guidance; an actuarial certificate may be required, adding to administrative costs.
Spouse balance disparities can increase aggregate exposure over time. Spouse balance disparities can increase exposure over time. This is general information only, not a recommendation about what to do with any particular balance.
A Worked Example
Consider a member aged 54 in accumulation phase with an SMSF holding a commercial property purchased in 2013 for $900,000, now valued at $1.8 million at 30 June 2026. The fund also holds $600,000 in Australian shares and $300,000 in cash. Total fund assets: $2.7 million. The member has a separate $400,000 in an industry fund, bringing their total super balance to $3.1 million.
At 30 June 2027, if the fund's assets grow and the TSB exceeds $3 million at year end, the member faces a Division 296 assessment on the portion of realised earnings attributable to the balance above $3 million.
On the CGT election: if the property was bought for $900,000 and is worth $1.8 million on 30 June 2026, the $900,000 gain accumulated over 13 years. Without the election, a portion of that gain could be swept into the Division 296 calculation when the property is eventually sold. With the election, the cost base resets to $1.8 million and only gains from 1 July 2026 onwards are captured.
Whether the election is worth making depends on the full asset picture of the fund, including any assets sitting at a loss. This is the analysis an SMSF specialist accountant is best placed to run before the annual return is lodged.
What to Do Before 30 June 2027
Three practical steps worth putting in motion now:
Check your total super balance across every fund. Your TSB for Division 296 is measured across all interests, including APRA funds, SMSFs, and defined benefit schemes. Log in to myGov and check the ATO's records, or ask your SMSF accountant to pull the figures. The ATO will identify affected individuals based on TSB data reported in the 2026-27 year and will issue assessments after 30 June 2027. The planning decisions that affect your liability need to be made now, not after the assessment arrives.
Talk to your SMSF specialist accountant about the CGT cost base election. The election is lodged with the 2026-27 annual return, but the 30 June 2026 market values are the reference point. If your fund has significant unrealised capital gains on long-term assets, particularly property, this election could save substantial Division 296 tax over the coming years. If your fund holds a mix of assets with gains and losses, the all-or-nothing nature of the election requires careful modelling before committing.
Review the fund's liquidity position. Division 296 tax can generally be paid from the individual's super fund. If the fund is property-heavy, work out whether there is enough cash or near-cash to meet a future assessment without forcing a distressed asset sale. If you are considering adding property to an SMSF, factor in the cash buffer requirements alongside the LRBA deposit and fund liquidity rules.
If you are weighing up whether an SMSF property purchase still makes structural sense given Division 296, or want to understand how SMSF lending (LRBA) works in the current environment, view our services or book a call to talk through the property and finance side with our team. Tax and structuring advice sits with your SMSF specialist accountant and licensed financial adviser, and we can help connect you with the right people.
Further reading is available in our insights section.
General information only, not personal financial advice. Speak with a licensed adviser before acting.