Tim Miller, head of education and technical for Smarter SMSF, said in a recent online update that the new measure, which will calculate Div 296 tax based on the higher total super balance either at the start of the year or the closing balance at the end of the year, doesn’t factor in a many key issues such as unexpected “spikes”.
“There might be an event that occurs that spikes the TSB at the beginning of the year or the end of the year, and then it drops back down almost immediately afterwards,” he said.
“This could capture that one person who is inevitably only over $3 million for a day and then subsequently gets hit from an earnings point of view based on that. There’s this whole total super balance change to being recorded twice a year or being measured twice other than in the first year and it is certainly what we consider a problem.
“It’s effectively a bit of a case of ‘have your cake and eat it too’, in the sense of the government is just going to say at any point in time, were you over $3 million? If so, we’re going to tax you.”
Aaron Dunn, CEO of Smarter SMSF, added the SMSF Association submission to Treasury on the new draft of the legislation highlighted how this measure would be affected by incidents like the First Guardian collapse.
“You might have a valuation at the end of a particular year, which therefore would be reflective of the value at the start of the following year and in essence, the value of that particular asset is such that that individual now moves below, but they’re ultimately going to get a double hit under those rules,” Dunn said.
“From the first iteration of these Div 296 tax rules, there were adjustments around things like withdrawals, but there doesn’t seem to be here. Obviously, there might be a push towards revisiting this or seeing how the regulations might deal with some of these matters, or whether the regulator might be able to look at some of these instances with some sort of powers.
“Straight away, it feels like they’re trying to capture those that will want to withdraw money to try and avoid it, but by doing so, by closing one door, they’re actually blowing a whole heap of windows out the back at the same time.”
Miller continued that he hopes that there will not be a move within the industry where people are trying to “manipulate” the TSB by manual adjustment.
“The manual adjustment does serve a purpose for exit costs and a few other things, if need be. But you don’t want people to start mucking around to go back and change total super balances because of a singular event,” he said.
“The concept should be driven on end of year or start of the year – it’s got to be one or the other. Most of us obviously lean towards that end of year situation, but the idea that you’re basing it on an either-or approach, whereas before, you used to replace the opening and closing balance with $3 million to negate paying too much tax. Under the old measure, they effectively were saying, ‘No, we don’t want you to pay in on any earnings above that’ but now they’re going, ‘well, we want you to be above it’.”
