What is Division 296 Superannuation Tax?
It is a brand new personal tax that is related to super, and will apply to those who have more than $3m in super at the end of each financial year. The additional tax will be calculated by multiplying the proportion of a member balance over $3m by the members earnings, and taxed at 15%. The particularly contentious element of this tax, is that the legislation includes unrealised gains in its calculation of ‘earnings’. This will have a significant impact on clients who are asset rich, but cash poor – but also sets an unwelcome precedent of taxing unrealised gains in general.
Division 296 Superannuation Tax Update
The current Parliamentary sitting is about to wrap up, and the Federal government has decided to not re-introduce the legislation for the proposed Div 296 tax – legislation that if approved is meant to start 1 July 2025.
Treasurer Jim Chalmers recently stated that the legislation won’t be introduced during this current parliamentary sitting period, citing other priorities. He did however reaffirm that the policy remains unchanged and continues to be part of the government’s broader plan to make superannuation concessions sustainable.
The SMSF Association has been advocating for members of SMSFs and voiced strong concerns about the possibility of the legislation being backdated to 1 July 2025 – given we are now well passed this date. According to Treasury’s own regulatory impact statement, individuals with high super balances require at least 12 months’ notice to restructure their affairs, including transferring ownership of assets. Backdating the legislation would contradict this advice and could lead to legal challenges.
The SMSF Association continues to emphasise that taxing unrealised capital gains would be unprecedented and urged the government to defer the start date and consult with industry on the design of the tax. The industry believes that alternative approaches could achieve the revenue goals while maintaining fairness – however to date the government seems unwilling to discuss alternative options.
It is believed that the Government doesn’t currently have the numbers to get this legislation across the line – which is why it was again delayed. The Association will continue its advocacy work for SMSF members, with the hope that the government will ultimately re-design the tax legislation for a more equitable result.
We will continue to monitor developments closely, and keep you informed as more details become available. If you have any concerns about how this may affect your SMSF, please don’t hesitate to contact Shona or Danielle at our office.