An SMSF specialist has warned all superannuation practitioners to avoid the expectation the proposed Division 296 tax will have an indexation measure applied to it in the future.
Accurium head of SMSF education Mark Ellem issued the warning in response to Labor’s admission the $3 million threshold contained in the proposed superannuation policy excludes any indexation calculation in its original form, but qualifying this concerning characteristic by saying any future government will have the ability to change it.
On this point, Ellem expressed a lack of confidence the threshold will ever be indexed based on current experience regarding other aspects of superannuation law.
“Are there any other superannuation-related thresholds that haven’t been indexed? Yes there is. And have they ever been indexed?” Ellem asked delegates at the recent SMSF Professionals Day 2025 co-hosted by selfmanagedsuper and Accurium.
“Think of the CGT (capital gains tax) $500,000 retirement exemption. When did that come in? A while ago. Has that ever been indexed? No, it’s never been indexed.
“What about the downsizer contribution limit of $300,000? It feels like that only came in yesterday; it was actually introduced in the 2018/19 income year. Has that ever been indexed? No. No indexation applied to that either.
“So there are existing thresholds that haven’t been indexed. They can be indexed but have never been indexed.”
Further, he suggested the bill for the proposed measure as it currently stands will potentially lead to additional operational conundrums with regard to the indexation of other balance limits.
“We’ve got the general transfer balance cap increasing to $2 million on 1 July 2025. So if that is getting indexed to $2 million this year, and the Division 296 tax threshold remains at $3 million, how long is it going to take before the general transfer balance cap is greater than $3 million?” he asked.
“If this happens, we will have a situation where you can have more than $3 million in a tax-free retirement income stream, but the government says we’re going to hit you with this Division 296 tax.
“So in those circumstances, will a retirement interest be tax-free or not?”
He pointed out if the government acquiesces to the Greens’ demand to have the original Division 296 tax threshold lowered to $2 million, this issue will manifest sooner rather than later.
