The introduction of the Division 296 tax will require super funds, particularly those with illiquid assets, to tighten up valuations and is likely to see higher administration and audit costs for funds, the Institute of Public Accountants has said.
IPA senior tax adviser Tony Greco said all funds will need to ensure their approach to valuations is completely by the book, with the calculation of earnings for the tax based on the change in a member’s total superannuation balance.
“Super funds will no longer be able to take a discretionary, ‘that’ll do’ type of approach, including SMSFs,” said Greco.
This will likely increase the cost of audits for many funds as there will be more work for auditors in verifying valuations as they know the valuations are relevant for the purposes of Division 296, he explained.
“Auditors won’t want to risk understating the Division 296 liability so where they may have relied on a valuation that was from a year or two ago instead of a more current one, that will now all be tightened up. It’s very important for Division 296 to have an accurate valuation of those assets,” he said.
Application of Div 296 to defined benefits to add significant cost
Greco noted that in the 2024-25 income year, the government had allocated around $9 million towards covering the cost of administering the cost for the public sector.
However, for members with defined benefits outside of the public sector, Greco said either their fund will be left to deal with the added complexity or they’re on their own.
Greco said the calculations for defined benefit funds roughly follow the valuations used for family law settlements.
“The government clearly recognises the complexity and cost of the tax for defined benefits for that sector and it highlights the administration involved for those who are not in the public sector,” he said.
“There are still a fair few types of defined benefits around in the marketplace.”
Greco also noted that the additional costs of administering the tax will be borne by all members in APRA-regulated funds, regardless of whether they are directly impacted.
“So, although it only impacts 80,000 initially, the cost of administering the tax is a relevant factor for everyone,” Greco added.
