A superannuation specialist has reminded practitioners notification of a Division 296 tax liability will be sent directly to the taxpayer and not via their SMSF and has confirmed the timeframe with regard to the payment of the impost.
“The ATO will not send a lovely letter to my super fund; it will send a lovely letter to me. And it will tell me … I can pay it personally or I can release it from [my superannuation benefits] and I’ve got 60 days to do that,” Colonial First State head of technical services Craig Day told delegates at the recent SMS Association Technical Summit 2025 held in Sydney.
Day noted the timeframe given to extinguish the liability is slightly more generous than usual, but even so is ineffectual if having to sell an illiquid asset in order to make the tax payment.
“Normally with a release authority you’ve got to [make the] release within 28 days, but the government has been nice and said: ‘We realise you might have liquidity issues so we’ll give you an extra 30 days to sell your business real property [and release the funds],’” he explained.
“Good luck with that.”
He also took the opportunity to clarify what the payment scenario would be for an individual who has been assessed as having a Division 296 tax liability with an accruing defined benefit interest in their super fund.
“If you have an accruing defined benefit interest, you don’t have an account balance to release any money from. You can pay it from your back pocket or you can defer your liability to a debt account,” he acknowledged.
“And then once you take a final benefit, that is, retire and take a pension, you’re going to get a lovely letter from the ATO that says: ‘Here is all your deferred Division 296 liability grossed up for interest. Happy retirement.’
“So watch out for that one.”
