In its submission to Treasury on the Better Targetted Superannuation Concessions bill, the SMSF Association noted that the revised draft of the legislation states small funds will be required to obtain an actuarial certificate to perform the relevant calculations and provide the attribution share.
“However, this requirement to obtain an actuarial certificate should not apply to single member funds. In this circumstance, the risk of selectively attributing specific fund assets to in-scope members in the fund does not exist,” it stated.
“This is consistent with the current exemption to the requirement to obtain an actuarial certificate for small funds calculating ECPI under the proportionate method where all members in the fund are in the retirement phase.”
The association’s submission also raised concerns over attribution methodology stating that additional guidance on proposed regulations, outlines the methodology to be used by small funds to proportion earnings to a member of the fund.
“The guidance states that the methodology will be based on the member’s time-weighted share of the fund over the relevant income year. We note this is the same approach used by the fund’s actuary when calculating ECPI under the proportionate method,” it stated.
“While we acknowledge the efficiency benefits of using the same approach to attribute earnings to members for Div 296 purposes, it is worth noting that this approach will give rise, on occasions, to unfair member outcomes.
“For example, a member who joins the fund part way through the income year may have their Div 296 earnings substantially increased by capital gains realised by the fund earlier in the income year and before the member joined the fund. Similarly, when a member leaves the fund, any resulting capital gains realised by the fund will increase the Div 296 earnings of the remaining members and not the departing member to the same extent.”
The submission continued that for SMSFs with defined benefit pension interests, the attribution of fund earnings will comprise both earnings calculated using the TSB value formula approach in s296-65 for defined benefit pension interests as well as earnings calculated by an actuary for all other interests.
“This appears overly complicated and cumbersome. Given an actuary will be required to calculate earnings for all other interests held by the member in the fund, consideration should be given to allowing the actuary to perform a single calculation of attributed earnings for all interests held by the member including any defined benefit pension interests,” it stated.
As well, for members switching funds if an in-scope member leaves one fund and joins another fund during the income year, it is not clear how the ATO will collate their taxable superannuation earnings.
“Presumably, the ATO will use data provided by superannuation funds from the previous income year to identify members who have moved funds during the income year and then request the member’s attributable earnings from their previous fund?” the submission stated.
“Although it is unlikely to be a common occurrence, consideration will need to be given to how the ATO will collate the taxable superannuation earnings of in-scope members who join a fund and then leave that fund during the same income year.”
The SMSFA submission also noted there are issues in regard to CGT adjustments for small super funds and stated while it “applauded” the government for introducing CGT adjustment provisions to ensure that the Div 296 tax will not be applied to earnings accrued prior to its commencement, it noted problems with the proposed cost base adjustment method for small superannuation funds.
It stated this will require a small superannuation fund to choose to adjust the cost base of the fund’s CGT assets that it held on 30 June 2026 to the market value of those assets on that day, with the choice being applied to all CGT assets held by the fund on 30 June 2026.
“SMSF trustees typically hold multiple assets. It is highly likely that at any point on or before 30 June 2026, the market value of some of these assets will exceed their cost base, while for other assets the asset’s market value will be less than its cost base,” it continued.
“Requiring that the fund trustee’s cost base adjustment choice be applied to all CGT assets held by the trustee will result in unfair outcomes where a particular fund asset’s market value at 30 June 2026 is less than its cost base – but its cost base for Div 296 tax purposes is adjusted in accordance with these provisions.”
It added that to improve the fairness of these CGT adjustment provisions, the proposed cost base adjustment method for small superannuation funds should provide that the cost base (for Division 296 purposes) be adjusted, at 30 June 2026, to the greater of the asset’s market value at 30 June 2026, or the asset’s CGT cost base.
“This approach further simplifies the proposed CGT adjustment provisions by removing the need for an election to be made – reducing the regulatory burden on all participants across the small superannuation fund sector,” it stated.
“It is also worth noting that some SMSFs still have pre-2017 deferred gain amounts. These funds are liable to pay tax on these amounts when the relevant asset is sold. In the year of sale, the deferred gain amount is included in the fund’s normal CGT calculations (but without discounting and with no ECPI). In our view, these amounts should be excluded from Division 296 fund earnings as the CGT event which gave rise to the gain occurred in 2017 (i.e. pre-30 June 2026).”
