Two distinct parts to cost base election

SMSF trustees considering to apply the cost base adjustment for fund assets before the commencement of the Division 296 tax should be aware the election to do so and the valuation evidence required are two different issues, a superannuation lawyer has pointed out.

DBA Lawyers director William Fettes noted the Division 296 regime will allow an SMSF the option to adjust the cost base of all assets to market value as at 30 June 2026 for the impost’s purposes but the reporting of that election takes place in the fund’s annual return for 2026/27, which will likely be in 2028 for most funds.

“The election itself happens by the time of the statutory annual return lodgement date but it is not the substantiation of the market value of the relevant assets as at 30 June 26,” Fettes stated.

“Of course, we do need to think about appropriate valuation evidence, and that might be relatively easy where assets are on the market, but for assets such as property, that’s a different beast.

“So [we need] appropriate evidence to support a valuation, and that obviously could flow through to units in a unit trust where you have to get valuations on the assets inside the it to know how that flows through to the pricing.

“This adjustment only applies to direct holdings, not to anything else in an interposed entity.”

Fettes recognized, in seeking valuations for the cost base adjustment, it would be acceptable to rely on the instructions in the ATO’s SMSF valuation guidelines for those figures at 30 June.

“If you’re concerned about it, best practice and prudence with contemporaneous valuations is probably the gold standard in that regard,” he confirmed.

“We do have a little bit of leeway with the election being in the future, but I wouldn’t rest on our laurels.

“We can get moving and think about valuation requirements in the lead up to this 30 June date knowing we’re not entirely trapped if we haven’t got the valuation done on 30 June or 1 July, provided we get our skates on.”