A technical services specialist has confirmed the penalty interest rate that would currently be applied to unpaid or deferred Division 296 tax liabilities and the fact the treatment of these amounts will be exactly the same as negative earnings under the measure.
Under the proposed policy, individuals will have 84 days in which to pay a Division 296 tax liability and 60 days to choose whether to do it personally or via their superannuation fund. If the debt is not settled within this timeframe, it will accrue interest until it is finalised.
“[The charge that will be applied if a taxpayer chooses not to pay a Division 296 tax liability] or can’t pay it will be what’s known as the base interest rate plus 3 per cent. The long-form term is the reduced rate of general interest charge for Division 296 purposes,” BT Financial Group technical consultant Matt Manning told attendees of an adviser webinar held today.
“Just to give you a bit of a guide [as to the actual rate that will be charged], for the first quarter this year that rate would be equivalent of 6.78 per cent.”
Manning took the opportunity to identify some circumstances where an individual may need to accrue a Division 296 tax debt.
“Some people will have little other option [than to defer their Division 296 tax liability] and pay the interest on that debt. We’re talking about illiquid property scenarios or maybe where someone was invested in say a start-up [company] and its [value] has gone nuts, [leading to the investor having] a very high super balance but essentially [no cash and no market] to sell to,” he pointed out.
However, he warned a deferral of a Division 296 tax debt did not mean there would be any reduction of the amount owed in the future, regardless of the performance of the asset in question.
“Someone [in this predicament] could get caught [out because they’ve decided] ‘I can’t pay [the tax so] I’ll accrue a debt’, [but if] in future financial years the value of those assets go down, well sorry, [it’s] too bad, you’ll still [be faced with] the debt and you can only carry forward that taxable super earnings loss to future [income years],” he explained.
