Aaron Dunn, chief executive of Smarter SMSF, said in the latest SMSF Adviser podcast that until the new legislation is tabled and any amendments made, the best advice is still to wait before making changes.
“It’s great that we’ve got these changes and a little bit more around how the revised approach will work, but we don’t have really any meat on the bone here to be able to start to make some informed decisions and discussions about how things will change from the conversations we’ve had previously with our clients,” Dunn said.
“And again, it’s one of my favourite sayings, it’s always an important reminder that we deal in law, not lore.”
Dunn said one issue that has raised concerns is how the capital gains tax discount will be applied, especially for balances over $10 million, while another revolves around the purchase date of an asset.
“If you’ve got an asset that you purchased 15 years ago in your self-managed fund, and then you realise that asset after, is there a reset that effectively excludes the pre-test time that is 1 July 2026? Or basically, is it an all-in approach and therefore whatever’s happened in the past is impacted by these measures? Again, the devil will be in the details to find out how the government is going to address those specific issues.”
Dunn added that another thing worth noting, which is referenced in the fact sheet, is that when looking at the attribution of earnings – realised earnings to the individual – there is an expectation of fair and reasonable allocation or attribution.
“We already have that within the SIS regulations – a requirement for fair and reasonable around fund earnings – so I suspect we’ll see the alignment of that to those regulations.”
“There was also a reference to it, supported by ATO guidance. What I take from that is you need to make sure you’re doing things fair and reasonably and that you’re not trying to hive-off amounts into fund reserves because then the ATO will look to apply part 4A.
“We’ve seen some of that reference in a regulatory bulletin in 2018 for SMSF, but I expect there to be a beefing up of that ATO guidance there. Again, just make sure you’re not trying to manipulate the outcomes of fund earnings as a tool to avoid or reduce the impact of how these revised Division 206 tax measures will apply.”
Dunn continued that previous conversations between SMSF trustees and advisers on portfolio diversification around becoming more income-producing rather than growth-focused to mitigate the possible tax on unrealised gains will now have to be re-evaluated.
“The question now is: how far does that conversation switch? In a perfect world, you actually don’t want income, but you can have the growth in the asset and in essence, only once that asset is realised in that particular year would you then be subject to the capital gain on that particular asset.”
“There are a lot of things that people will start to look at, identify with certain client scenarios and start to unpick where the issues are and then naturally where the opportunities lie. But I think one thing I hope they do look to address is the issue of when someone has died on 30 June, which was a problem in the last legislation. You’d like to think that they actually try and fix that one.”
I see that Chalmers has cone forward with more clarity around the taxng of realised gains. This is a refreshing development from our Treasurer. Let’s hope that this is a genuine attempt to be more open with no rhetoric or spin.
I hope that the government comes quickly to the table this time around to clarify the realised earnings definition. It listed the definitions in its original Div 296 proposal fact sheet, but has not done so this time around. They seem to be deliberately obfiscating around the issue.
One thing that I really detest about Chalmers is that he never speaks openly about issues – it is always in “spin-speak”, hence why he is often referred to as Dr Spin Chalmers. There is never clarity is what he says – it is always grey, not crystal clear.
Chalmers, please come clean sooner than later this time. We deserve that from our so-called leaders. It took you nearly a whole term to come clean on Div 296 v1. Let’s not have a repeat of this with Div 296 v2, please.
40% on earnings for amounts of super balances over $10m seems exhorbitant to me, especially if it includes realised gains (often largely because of the effects of inflation on a property purchase, I would think).
I agree with the LISTO aspects of the new proposal, but then on the other hand, I can see that 40% tax on some of the earnings may mean that some of those caught up in this will also pay more tax in super than they pay outside of super.
Where is the equity in this side of the equation then? Just saying….