Aaron Dunn, chief executive of Smarter SMSF, said on the most recent SMSF Adviser podcast that the increasing media attention on the $3 million super tax legislation, and claims that some politicians will be exempt, cannot be settled until the legislation becomes law.
“We have a bill here that is quite clearly looking to introduce a measure that would apply a new division into the tax regulations or into the tax laws,” Dunn said.
“But where a lot of the requirements sit are regulations by law that don’t need to go through both houses of Parliament. So we have seen two pieces previously introduced as regulations or exposure drafts for consultation. One of those has become regulations, which were around the legacy pension amnesty for SMSFs.”
Dunn said this was a positive outcome as it enables people to unwind defined benefit pensions that will be subject to an actuarial calculation each and every year to determine that value.
“And this is where there’s a lot of discussion about to whom this tax is going to apply. One of the things that we did see in March of 2024 was a set of regulations that were providing a framework to value these defined benefit interests,” Dunn said.
“That was an exposure draft and, again, we don’t have any regulations released in respect to these, so ultimately what we’re seeing at the moment is the Opposition saying it will not apply to the Prime Minister and to a number of other politicians. However, at this point in time, until we have a law with the Division 296 measures in their own right, we don’t know how the government intends to apply [this regulation].”
He continued that from past experiences with the exposure draft of the legislation, there was the inclusion of those on constitutionally protected defined benefits, and the expectation is that if the government is to apply the Div 296 tax consistently, it will most probably do the same for the exposure draft concerning valuing defined benefit interests.
“However, it needs to rewrite the definition of total superannuation balance as part of these amending measures to ensure that it can help characterise defined benefit interests for the purposes of these Division 296 tax laws.”
“They’re looking at ways that already exist within the superannuation laws that deal with this, such as those around family law. [In this instance], if someone has a defined benefit interest, and there is a marital breakdown, we need quantification of how much of that superannuation interest as we know it would be a divisible interest by how much that benefit is worth at a point in time.
“In essence, the government is looking at taking that sort of framework and being able to apply it to this situation to then be able to determine how the Division 296 tax liability would apply.”
From a technical perspective, Dunn said, there does need to be a change to some of the rules that exist for those in positions like the prime minister around the application of contributions.
“We don’t have the full mechanism yet because it was an exposure draft that we’d seen previously, and until we’ve got more meat on the bone to work through, we’re spitballing in terms of what we need to do [as advisers],” he said.
He added that with the plethora of information coming through all media channels, advisers must be able to “cut through fact and fiction” and know what clients need to understand to plan for the introduction of the tax.
I don’t understand the difficulty of imputing the capital value of a DB pension. The 16 times initial pension methodology was used by the ATO to value mine when the Transfer Balance Cap was introduced. If a new methodology is to be introduced for Div 296, does that mean I should expect mine to be recalculated if/when Div 296 passes?
Agree, John. It really can’t be that hard.
Defined Benefit pensions are a multiple of your final salary averaged over x years.
Pretty simple to run a calculation based on current salary to come up with an imputed value at current date. Isn’t this why every other Fund has to obtain asset valuations every year?
Not true for me or anyone on the (now closed for good reason) Commonwealth Super Scheme. My annual pension is unrelated to my salary at any time while I was a public servant. It’s damn good though, being roughly equal to an indexed 24% of the account balance on retirement at age 55. Technically, my pension started at 9.55% of 250% of the account balance. That balance is entirely fictional, as I got back 100% of my contributions and earning with no tax. I paid the QLD flood levy, ‘coz a levy is not a tax according to the ATO and Centrelink. I could have got a bigger pension by not taking that cash out, but I needed it at the time (15 years ago) to help a kid buy a home.
To add to the “spitballing”, how interesting that Treasury actually wants industry input into one aspect of this contentious, poorly drafted bill.
Treasury stated its aim was for “sector neutrality” – what a joke, all three sectors have a different valuation methodology and harmonisation is not possible. Enter Regs for defined benefit interests – that square ball will never go into the round one size fits all Div 296 formula. But it won’t apply the same rationale to SMSFs – apparently, Trustees can’t be trusted to fair deal…
Truth is that, politicians will understand the impact on their entitlements and will be very noisy if it doesn’t seem fair, even though they represent a miniscule number in the overall scheme of things. I note Chalmers is not a pre-2004 parliamentarian but he cares. Can’t help but be very cynical.
Defined benefit is not my area of knowledge, but it appears to me that Chalmers is not being truthful when he says that the current push back against Div 296 is not fair as they did lots of consultation and the details have been out there for 2 years, and it is ok to implement Div 296 in about a month from now. Well if they have not sorted out how it works with defined benefit after two years why not? When they have sorted those regulations then they can start counting their 2 years and not before is my view. Maybe the phrase “liar liar your pants are on fire” applies to him right now.