Key action steps for 26-27
In part 1, we explained why Division 296 is not just an issue for SMSF members with large listed investment portfolios. It can also affect self-managed super fund members whose wealth is tied up in farmland, business real property and other long-term assets.
If part 1 was about understanding who is exposed, part 2 is about timing and how the Div 296 transactional provisions are applied. For many affected SMSF members, the Div 296 transitional provisions may be the most important part of the proposed regime because they create two critical dates: 30 June 2026 and 30 June 2027.
Before You Start
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Haven't read part one yet?
Why the Div 296 transitional provisions matter
The proposed Div 296 rules are intended to apply from 1 July 2026. For the 2026–27 financial year, the relevant total superannuation balance test is applied at 30 June 2027. After that transitional year, the regime is intended to move to a greater-of-opening-or-closing-balance test. That distinction matters because a step taken before 30 June 2027 may help in the first year, whereas a later withdrawal may not help in later years if the member started the year above the relevant threshold.
That is why this is now a commercial issue, not just a technical one. A member may have built substantial value inside superannuation over many years without any corresponding increase in liquidity. That was the core concern in part 1, and the transitional rules now make that concern more immediate.
What SMSF members need to do before 30 June 2027
The second key date is 30 June 2027.
The Div 296 transitional provisions provide that if the member’s total superannuation balance exceeds the relevant threshold at 30 June 2027, Division 296 can apply for that year. If the members total super balance is less than the threshold on 30 June 2027, Division 296 will likely not apply.
The proposed rules also indicate that members may choose to withdraw money or assets from superannuation before 30 June 2027 to try to fall below the relevant threshold.
That means trustees should not wait until the last minute. They should be updating the values of the assets that drive the member’s balance before 30 June 2027 so there is enough time to make an informed decision.
The valuation exercise does not end at 30 June 2026.
A value at 30 June 2026 may be relevant to the CGT reset question, but 30 June 2027 is a separate issue. By that point, the trustee needs updated values to know whether the member will actually be above or below the relevant threshold at the end of the transitional year.
Using the same farm example from part 1, a valuation obtained before 30 June 2026 helps with the reset decision. A later valuation before 30 June 2027 helps determine whether the member is likely to be above the relevant balance threshold when the first-year test is applied. They are different questions and should not be collapsed into one exercise.
For some members, the transitional year may present a limited planning window.
If the member is close to the threshold, the proposed rules indicate that a withdrawal of money or assets before 30 June 2027 may help reduce exposure in the first year. After that transitional year, the position becomes harder because the opening balance for the year is also relevant.
That is particularly important where the fund holds business real property, farmland or other assets that are difficult to sell or divide. In those cases, the issue is not merely tax. It is also liquidity, timing and whether any restructuring step is commercially sensible.
If trustees are going to move assets, the transfer duty impact of moving assets directly to members or an associated entity (company trust etc) should also be considered.
Pensions versus accumulation funds
Accumulation funds
For accumulation-only funds, the transitional issues are usually more direct.
The main questions are which assets are driving value, whether the 30 June 2026 CGT reset is beneficial overall, and where the member’s balance is likely to sit at 30 June 2027.
Where the CGT reset is relevant, trustees should be working through each asset individually to assess whether resetting the cost base at market value is advantageous. Funds holding assets with significant unrealised gains may find the reset reduces future tax exposure. This needs to be weighed against the cost of any disposals or restructuring required to take advantage of it.
Pension funds
For funds in pension phase, the position can be more involved.
That is because net exempt current pension income is added back into the methodology and the proposed SMSF attribution model is proportionate and time-weighted. The result is that pension interests may involve more complexity in working out attributable earnings.
The pension issue becomes even more important in succession planning. The proposed rules indicate that a surviving spouse may be brought into the regime sooner because, after the transitional year, they may be tested on the higher of their opening or closing balance. The proposed rules also confirm that earnings on automatically reversionary pensions are included in total superannuation earnings.
That means members with reversionary pensions, legacy pensions or likely succession issues should not treat this as just a balance cap problem. Before 30 June 2027, they should also be reviewing whether current pension nominations and succession settings still make sense under the revised model.
Before 30 June 2026
Review the fund’s CGT assets.
Obtain reliable market values for material assets.
Assess whether the proposed CGT reset is favourable across the whole fund. If the fund is in pension phase, review whether the fund’s records and structure are ready for a more complex earnings attribution model.
Before 30 June 2027
- Refresh the values of the assets driving the member’s total superannuation balance.
- Work out whether the member is likely to be above the relevant threshold at year end.
- Consider whether any withdrawal of money or assets before 30 June 2027 is appropriate.
- If pensions and succession issues are in play, review those settings before the balance test date arrives.
Final thoughts
Part 1 explained why Division 296 can affect ordinary private business families whose value sits in long-term assets rather than liquid investments. Part 2 is the practical follow-on. The real question now is not just who may be affected, but what they need to do, and when.
For many SMSF members, the two dates that matter most are 30 June 2026 and 30 June 2027. The first is about the proposed CGT reset and getting the valuation evidence you need. The second is about where the member’s balance sits at the end of the transitional year and whether action taken before that date can still make a difference.
What is clear is that the transitional provisions in Division 296 allow SMSF members opportunities to either reduce or eliminate the new tax. And that will require deliberate thought and clear advice as the changes needed could be long lasting. This is where Westcourt can help – so call us today.
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