A senior SMSF executive has cast doubt on whether the $3 million threshold applicable to the proposed Division 296 tax would ever be increased if an indexation mechanism for the measure is not included from the perspective of the political capital involved.
“If [the $3 million threshold] was auto-indexed, like the transfer balance cap or concessional contributions, no one would think twice about it. It would just get indexed to inflation. That’s fair [because the amount would just be] keeping up with the time value of money,” Accurium head of SMSF education Mark Ellem told attendees of a recent technical webinar he hosted.
“But if a government was actually required to increase this threshold at a future date, could that be argued by those on the other side of the house [that] ‘oh, you’re giving a tax cut to the wealthy’?
“[They could put forward the government] is increasing the threshold from $3 million up to a higher amount and that means less pare back of tax concessions for the wealthy.
“So I do question and wonder, again because this threshold is not auto-indexed, what government would have the courage to actually increase it?”
According to Ellem, there is more bad news with regard to the calculation of the tax if SMSF trustees choose to pay the liability out of their super fund. To this end, any withdrawal from a super fund is required to be added back in order to determine a person’s Division 296 tax if their total super balance is over $3 million.
“What’s included as withdrawals? A superannuation benefit payment, [such as] pension payments and lump sum payments, but it actually would also include a payment made under a release authority,” Ellem explained.
“So if the member gets hit with Division 296 tax and they elect to have the amount released from their super fund, that’s a withdrawal that gets added back [to the liability calculation] for the year that it is paid.”
