With the $3 million Division 296 legislation commencing from 1 July 2026, much of the discussion has focused on the additional tax that will apply to members with superannuation balances that exceed $3 million.
A key component of this tax is the availability of the cost base reset election at 30 June 2026 for Division 296 transition capital gains tax (CGT). This election is available to SMSFs, including those that have members with balances under $3 million at 30 June 2026. Clearly, an important practical consideration is the valuation of SMSF assets.
SMSF trustees are already required to value fund assets at market value each year as part of their annual reporting obligations. However, for trustees considering their exposure to Division 296 and the cost base reset election, the market values adopted at 30 June 2026 will become relevant to future Division 296 tax calculations.
Why 30 June 2026 Matters
The cost base reset election allows SMSFs to reset the cost base of assets held at 30 June 2026. It is important to note that this reset applies only to Division 296 calculations and does not impact CGT at the fund level in any way.
Where the election is made, the market value adopted for an asset at that date becomes the relevant CGT cost base when determining future gains and losses for Division 296 calculations.
Importantly, the election applies on an all-or-nothing basis. Trustees cannot choose to apply the election to some assets and not others.
This means consideration should be given to the valuation of all CGT assets held by the fund, not just selected investments.
While the election itself is not made until the fund’s 2027 annual return is lodged, the relevant valuation date remains 30 June 2026. Trustees should therefore ensure appropriate valuation information is obtained around that date, particularly where market value is not readily ascertainable.
Which Assets May Require Additional Attention?
For SMSFs invested primarily in listed investments and cash, determining market value is generally straightforward.
However, trustees holding property, shares in private companies, units in private trusts and other unlisted investments or collectables may need to give greater consideration to the valuation methodology adopted and the information available to support those values.
Residential Property
For residential property, trustees should obtain an independent valuation, online valuation report or real estate agent appraisal as close as practicable to 30 June 2026.
Where an agent appraisal or online valuation is relied upon, it should ideally be obtained within three months of 30 June 2026 and supported by comparable sales data.
Where this is not available, trustees should ensure sufficient objective information is available to support the market value adopted.
Commercial Property
Similar considerations apply to commercial property. However, given the nature and value of many commercial property investments, trustees may wish to consider obtaining an independent formal valuation.
An independent formal valuation obtained within six months of 30 June 2026 may provide strong support for the adopted market value. Alternatively, trustees may obtain an agent appraisal or online valuation supported by comparable sales data, ideally within three months of 30 June 2026.
Where a formal valuation or appraisal is not obtained, trustees should ensure the market value adopted is supported by other objective information, including comparable sales, lease and rental information, commercial property market data and any significant improvements made to the property since it was last valued. Keep in mind that often a commercial property can have unique features or uses that aren’t necessarily captured in broad market data.
Shares in Private Companies and Units in Private Trusts
Investments in private companies and trusts can often be more difficult to value, particularly where there is no readily available market value or no active market trading interests in a private entity.
Trustees should consider obtaining:
• Financial statements of the entity, preferably audited if available.
• Information supporting the value of the underlying assets.
• Independent valuations where available.
• Information regarding recent unit or share transactions.
• Details of any capital raisings.
• Directors’ declarations or other statements supporting the value of units or shares.
Recent arm’s length transactions involving units or shares will often provide strong evidence of market value. Where these are not available, trustees should consider what information is available to support the valuation methodology adopted and any assumptions relied upon.
It is also important to note that audited financial statements alone may not always be sufficient, particularly where underlying assets are recorded at cost rather than market value.
What Should Trustees Be Doing Now?
All SMSF trustees should take the opportunity to review how the market value of their assets will be determined at 30 June 2026 and whether sufficient supporting information will be available.
In particular, trustees should:
• Identify assets that may require additional valuation work.
• Consider what valuation methodology will be adopted.
• Determine whether independent valuations, appraisals or additional information should be obtained.
• Gather further supporting information around 30 June 2026.
For trustees considering the Division 296 cost base reset election, this review may be particularly important given the potential tax implications of the values adopted at 30 June 2026. Ensuring those values are appropriately supported at the time they are determined provides greater certainty should they become relevant to future Division 296 calculations.
The final thing to keep in mind related to valuations is the impact they can have on SMSFs that are in pension mode. Higher asset valuations will result in higher minimum pension payment requirements and may create liquidity pressures for some funds.
If you would like to discuss how Division 296 may apply to your SMSF, please contact one of our superannuation specialists.
