Aaron Dunn, CEO of Smarter SMSF, said the legislation has moved from looking at total super balance movements to “drilling down” on the accounting function and fund level then looking at it at an attribution level to those in-scope members.
Tim Miller, head of education and technical for Smarter SMSF, said the removal of unrealised gains from the earnings has now produced a “remarkably different “ Div 296 outcome for individuals.
“Certainly, in some instances, it will result in a smaller tax on an incremental basis, and then a large tax in a single event. And the key to that was always going to be about liquidity. You sell down the assets so you’ve got the liquidity to be able to fund the liability,” Miller said.
Dunn said the total liability will be more under version two of the legislation and the biggest issue is that during years one through to year of sale, or prior to the year of sales, the fund didn’t have the cash flow in some instances, whereas post disposal, with the proceeds of any sale, members “might actually have to cop up a little bit more”.
Miller continued that although the new draft is a “far better constructed” piece of legislation, there are still some flaws.
“One of the glaring issues for us is that there was a previous exclusion for death, which seems to have been removed from this legislation. Now, again, we’re in consultation. We’re not in final hours so will that be something that changes? Who knows, but that clearly is a shift in position from a tax collection point of view as to who will be liable for the tax,” he said.
“Through the consultation so far, people are picking up on little things that perhaps need to be clarified by Treasury with regards to how certain things will work. For example, the concept of capital gains tax and whether there’ll be dual reporting requirements or a singular reporting alignment.
“The other key thing is we’re now seeing the introduction from 1 July 2026 as opposed to 1 July 2025, so we’ve got that deferral. But we’re now in January, so again, time is obvious.”
Dunn continued that he believes there are now three phases to the legislation – the first phase where trustees have to consider a range of decisions between now and 1 July 2026, the second phase which is the introduction of the new measures, and the third phase is the full operation of laws from 1 July 2027.
He said in the second phase, with some transitional relief available during year one, trustees will have to make decisions between 1 July 2206 and 30 June 2027. By phase three the nuances of each of the stages will be crucial in the work that advisers will be doing with their clients, and understanding when they may need to make adjustments.
“The adjustment needs to be made on all assets, not just on a singular asset. There’s a whole myriad of stuff that we need to get our head around. And therefore, once we understand some of those fundamentals, we then start to peel layers off about things like what’s the difference between reversionary and non-reversionary beneficiaries, and a whole range of those things which we were contemplating under that previous version,” Dunn said.
