However, despite the eleventh-hour reprieve, the industry is still anticipating the controversial legislation will again be put before parliament in the new year.
David Busoli, principal of SMSF Alliance, said the shelving of the Division 296 tax was indicative of serious concerns held even by those in favour of its stated underlying objective due to its fundamentally flawed design.
“There was little about this matter that reflects favourably on the government. It was announced as an equity measure targeting members with $80 million in super but released with a $3 million, unindexed target,” Busoli said.
“It demanded a second consultation period after the first was so demonstrably inadequate but virtually all recommendations were arrogantly ignored, even those concerning fundamental drafting errors.”
The tax on unrealised gains, he said, was a measure “fraught with unintended consequences” to cater for inadequate APRA fund administration systems.
“It remains to be seen if the Parliament sits again in February or whether we will face an early election. In any case, I am hopeful that sanity will prevail and that this measure will be abandoned or, at least significantly altered as currently it is nothing like an equity measure,” he said.
Meg Heffron, director of Heffron, said she was “very relieved” the bill failed to pass.
“It was fundamentally a terrible way to implement the government’s policy. We should expect that future governments on either side ARE likely to cap the tax concessions available to very high super balances,” Heffron said.
“But I think it’s entirely reasonable for the people who are impacted and the SMSF industry generally to expect it to be done fairly and with sensible legislative change. Something that involved taxing unrealised gains was absolutely crazy and I’m glad the government didn’t have the support to pass it. I sincerely hope they go back to the drawing board.”
Shelley Banton, head of technical for ASF Audits, said the news about the potential downfall of Division 296 in its current form was a welcome relief to the SMSF industry.
“The SMSF Association has done a fantastic job lobbying against this flawed tax. While Div 296 does not impact the audit, it will not affect the focus of SMSF auditors on market valuations to ensure compliance with r8.02B,” she said.
“If it’s true that the government intends to take Div 296 to the next election, I can’t help but wonder whether we’ll hear the words ‘I misread franking credits’ recycled as ‘I misread Div 296’.”
Aaron Dunn, CEO of Smarter SMSF, said the industry is now “taking a deep breath and holding on”.
“If you go back six months as an industry we were quite disappointed that this was going to go through and there was not much we could do about it,” he said.
“However, this bill did not make it through to the end of the year and it is a good lesson for advisers to follow what is happening and not pulling the trigger on any strategies until you know it’s going to happen.”
Dunn added that clients may want to consider strategies in preparation, but the postponement of Division 296 is a prime example that acting before something is made law may put them in a situation where they can’t pull back.
“It’s all about risk management. You can determine how you may need to move the deck chairs to make things work but don’t pull the trigger until it happens,” he said.
