A senior industry executive has reminded practitioners SMSF trustees who make a structured settlement contribution resulting from a personal injury will be permanently excluded from having the proposed Division 296 tax applied to them.
Colonial First State head of technical services Craig Day firstly recognised a structured settlement or personal injury contribution will not be counted in a superannuant’s total super balance for Division 296 tax purposes.
“That’s really important here because in terms of the rules if we’re looking at a client with say $10 million in superannuation, but $9 million of that is from a personal injury contribution, then we don’t even include that $9 million in the calculation of [their total super balance for the Division 296 tax determination],” Day told attendees of an SMSF Association member webinar held last week.
Further, he noted there is an added bonus for any SMSF members finding themselves in this type of situation.
“Not only that, the government has specifically permanently excluded those people from ever being subject to a Division 296 [tax] liability,” he said.
“Why is that? Well, I might be a client who has received a very large compensation payment, so let’s [say $15 million], then yes, my total super balance will always be adjusted for that $15 million personal injury contribution, but my earnings over time may mean that [my total super balance does] get up over $3 million and I’m going to be subject to the tax.
“So the way the government deals with [this potential circumstance is to say] if you’ve ever made a personal injury contribution, you are excluded from these rules.
“So you could have a client with $20 million sitting inside a self-managed super fund, [but] if that’s [entirely made up from] a personal injury contribution, then they do not need to worry about these rules.”
