Peter Johnson, director of Advisers Digest, says ideally, plans should have been put in place on 1 July, the date on which it is anticipated the legislation will be retrospectively applied.
“Things need to be done early in the year. If you’re not going to leave money in super, or if you decide to take it out, it needs to be decided now,” he said.
“Although we don’t even have a bill in front of Parliament, I suspect we will receive the exact same bill as was put forward last year. I’m going to make an assumption that to save the government a lot of cost, time and effort, it is just going to reintroduce the same bill and it is going to apply from 1 July 2025.”
Johnson said although some trustees and advisers may wonder why measures should be put in place now, rather than when the bill is passed, he likened it to being appointed the executor of somebody’s estate back dated to the date of death, even though they’re not appointed until four months after the member has died.
“Everyone’s going to introduce tax effect accounting so that they will have a provision for capital gains tax, and there’s nothing wrong with that if you’re in accumulation phase.”
“If you’re 45 years old, and you expect that all your assets will be there until you’re 60 or 65 when you start a pension, there is a chance you’re going to sell that asset before you’re 65, so tax effect accounting would make sense. But if you’re in pension phase, you’re not going to get away with providing for 15 per cent tax or 10 per cent tax on the sale of an asset.”
Johnson said it is also important to remember that the possible Div 296 tax liability must be paid by the individual.
“It’s your bill. It’s not your fund’s bill, just like Div 293 billed to the individual, [with Div 296] there is a Notice of Assessment issued to the individual. Think of excess contributions. Think Div 293 tax, you get the bill, but you can then get your release funds from super to pay that tax bill.”
“You can say you want the super fund to pay it, just like excess concessionals. You should also note that you don’t get a tax deduction where your earnings are negative, but you can carry forward the negative earnings.”
He added that if the member dies, this means that if you have carried forward negative earnings, they may never materialise.
“You are paying tax on unearned income, and we’ve got to now plan for that and figure out how to deal with it.”
“I’ve had some clients who I have told about this, and they have said ‘Who cares?’, but I’ve got another client who has two cattle farms, with a total combined value of $25 million. They only make $300,000 a year.
“Now, imagine if their farm was in super now, paying $100,000 a year renting the farm, they’re left with $200,000 for themselves, and their fund goes up $2 million for the year – it could almost send them broke, because they have to find the money to pay that tax, and the only way they could get that cash would be to sell the farm.
“They can’t finance against it, because it’s in super. If you take it out of super, you’ll have capital gains tax. It really is going to create problems, but that’s just the way it is. You need to consider what you’re going to do now.”
This proposale doesn’t change the methodology for calculating TSB.
Therefore, a provision for CGT should already be factored into the value being reported for accumulation accounts and TTRIS that are not in the retirement phase. These accounts should factor in the value the that would be paid if the individual were to voluntarily close their account. Same goes for account based pensions, it’s the value that they would receive if they were to close the account.
Valuing TSB appropriate might also help clients with smaller balances for the pruposes of determining their TSB for things like their NCC cap, the ability to use their carried forward CCs etc.
Avoid any possibility of ITAA Part IVA by taking any action before Div 296 is before parliament again. You cannot be guilty of avoiding a tax that does not exist at the time. not even an act before parliament at the time.
…and Div 296 is planned retrospective to 1 July 2025….so there!
Loved the item in the news recently when a Treasury official leaked that the budget will not come into balance until taxes are raised and/or SPENDING IS CUT.
Jim Chalmers response to the problem was to put it down to a mistake by an official for releasing the information. Not his inability to address the underlying issue of overspending. Thick as two short planks
Recall, there is not one thing the government gives or has done for you that they have not taken from you first.
Hilarious !!
3 weeks ago everyone was saying, “NO RUSH ! LEAVE IT TO APRIL 2026 ! ”
Now, The Sky is Falling ! The Sky is Falling !
I agree with Dan Butler: it will be hard to get systems up to date in time to impliment this tax.
finally, will we be having a debate whether to use “Termination Value” as against “Tax Effective Accounting” ,or do you perceive them as identical ??
It won’t be hard to implement.
The ATO already receives member balance information, contribution and benefit payment information for all members of all superannuation funds, including large funds, not just SMSFs.
Division 296 is not a direct tax on superfunds, it is a personal tax. They already have enough information to raise these assessments just like they do for Div 293.
Financial planners best take care in dispensing strategies to withdraw benefits from superannuation to avoid or reduce the impact of Division 296.
This is a tax like any other, and if the primary purpose of the “strategy” is to avoid the application of Division 296, ITAA Part IVA might be a bigger concern.
It’s not just the taxpayer, but anyone who aids, abets or counsels tax avoidance is also guilty of an offence.
Planners should be careful of what they put in writing, and don’t expect the clients tax agent to just approve it like you often do.
It’s not just that but if you are going to take a lump out you’ll get a higher ECPI percentage if you withdraw earlier if you are in pension phase, this will reduce CGT (before you get your 296 bill if still liable). Noting of course your stamp duty if the asset is land is the third tax being invoked on the one asset.
Problem is it has rarely been good to jump at shadows on unlegislated rules. This government is morally bankrupt, not only in the changes to the concept of taxation on unrealised gains, lack of indexation but also the period of assessment we are now in (FY26) and we STILL don’t have enacted legislation.
Just goes to show Chalmers and Albanese JUST DON’T care.
Make it on fund income and index the threshold and all the noise will go away as equity will return.