From 1 July 2026, anyone holding more than $3 million in superannuation pays an additional 15 per cent tax on earnings attributable to the excess balance. For self-managed super fund trustees with direct property holdings, that means annual valuations, a one-time cost-base election by 30 June 2026, and new liquidity decisions around illiquid assets.
The measure applies to total super balances across all funds, industry, retail and SMSF, but the compliance burden and strategic choices land hardest on SMSFs holding unlisted property, commercial real estate or development assets that don’t generate daily mark-to-market pricing.
How the earnings test works for property-heavy SMSFs
The ATO calculates taxable earnings based on the change in your total super balance over the financial year, adjusted for contributions and withdrawals. Unrealised capital gains are included in that calculation, so a $500,000 paper gain on a commercial property counts as earnings, even if no sale occurred.
For members above the $3 million threshold, the ATO determines what proportion of the total balance sits above the line, then applies that proportion to total fund earnings. A $4 million balance means 25 per cent is over the threshold; if the fund’s earnings are $200,000 that year, $50,000 is subject to the additional 15 per cent tax, a $7,500 bill.
That bill is assessed to the individual, not the fund. You can pay it personally or request a release from the super fund, but for SMSFs holding a single commercial property with minimal cash reserves, forcing a partial sale or refinance to fund the tax becomes a real scenario.
The cost-base reset election: one chance, all assets
SMSF trustees can elect to reset the cost base of every asset in the fund to market value as at 30 June 2026. The election locks in a higher starting point for future capital gains calculations under Division 296, effectively quarantining any unrealised gains accrued to that date from the new tax.
The election is all-or-nothing: it applies to every holding in the fund, including listed shares, cash, and any properties. That creates a choice for trustees with mixed portfolios, accept a cost-base uplift on appreciated assets while also resetting any underperforming holdings that might benefit from a lower base.
**The catch**
The election must be made before 30 June 2026. Miss the deadline and every dollar of unrealised gain sitting in your fund’s property or equity holdings becomes part of the earnings base when those assets eventually appreciate further or are sold. For a commercial property bought in 2015 and now showing a $1.2 million unrealised gain, that’s a material difference in future tax exposure.
– The election applies to all assets, not cherry-picked holdings
– It creates a separate cost base for Division 296 purposes only, standard CGT rules still apply on sale
– Trustees need a qualified, defensible valuation for every unlisted asset as at 30 June 2026
– No extension or second chance after the deadline passes
Direct property: the valuation and liquidity question
Unlisted property holdings in SMSFs now require annual market valuations to calculate the total super balance for Division 296 purposes. That adds a recurring compliance cost, but the bigger question is liquidity.
If the additional tax bill is $15,000 and the fund holds a single commercial property with rental income already committed to meeting pension obligations, paying the tax personally avoids forced asset sales. If the bill is $60,000 and climbing as the property appreciates, trustees face a decision: hold the asset and fund the tax externally, refinance to extract cash, or sell and reallocate to more liquid holdings.
Some trustees are weighing whether to move property out of the SMSF entirely before July 2026, either by triggering an in-specie transfer to personal ownership (taxable event, stamp duty implications in most states) or selling to a related party at market value (still a disposal for CGT purposes, plus ATO scrutiny on arm’s length pricing).
Neither path is clean, and both crystallise a tax event now to avoid a potentially larger tax drag later. The trade-off depends on how long you plan to hold the asset, expected appreciation, and whether liquidity inside the fund is already tight. There is an emerging edge case for funds with property holdings under [financial strain from rising costs and tighter credit conditions](https://www.apreview.com.au/bad-debts-equipment-finance-broker-earnings-stall/), Division 296 becomes one more pressure point in a portfolio already managing serviceability.
Who this hits and what the thresholds mean
The $3 million threshold indexes with CPI annually after the 2026-27 financial year, so it will rise over time. A second tier applies to balances above $10 million: earnings attributable to that portion face an additional 25 per cent tax (10 per cent on top of the base 15 per cent), bringing the total marginal rate on those earnings to 40 per cent when combined with the existing accumulation-phase tax.
The measure affects a small share of super fund members, ATO estimates put it below 1 per cent of accounts, but those members hold a disproportionate share of property assets inside SMSFs, including direct holdings in commercial, industrial and residential investment property.
Balances in pension phase and accumulation phase are both captured. The tax applies to the individual’s total super balance, not segmented by account type.
Base case, upside, downside
Base case: most affected SMSF trustees make the cost-base reset election, accept the recurring valuation cost, and pay the tax personally where liquidity inside the fund is tight. Property holdings stay in place, annual tax bills range from $5,000 to $25,000 for typical excess balances, and the measure becomes part of the structural cost of holding super above $3 million.
Upside scenario: CPI indexation lifts the threshold faster than expected, reducing the number of members caught above the line over time. Property appreciation slows or stalls in some asset classes, limiting the earnings base and keeping tax bills modest.
Downside scenario: property values continue climbing, unrealised gains compound annually, and trustees who skipped the cost-base reset face a growing tax impost on paper gains they can’t access without selling. Liquidity crunches force asset sales at inopportune times, or funds shift allocations away from property entirely to avoid the valuation and tax burden, reducing direct property exposure across the SMSF sector.
Practical take for SMSF trustees with property
If your total super balance is within $500,000 of the $3 million threshold, model whether contributions or market appreciation will push you over the line by 30 June 2026. If you’re already above, get a defensible valuation of every unlisted asset in the fund before the reset deadline and run the numbers on whether the election makes sense given your holdings mix.
For property-heavy funds, stress-test liquidity: can the fund meet the tax bill from rental income or cash reserves without forcing a sale or refinance? If not, decide now whether paying the tax personally is sustainable over a five- to ten-year horizon, or whether reallocating out of direct property before July 2026 is the cleaner path.
The cost-base reset election is a one-time decision with long-term consequences. An accountant with SMSF and property experience can model the scenarios, but the call sits with trustees, and the clock runs to 30 June 2026.
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General info, not financial advice.
