The government’s plans to revise how it will implement the proposed Division 296 tax have raised a new series of questions in relation to capital gains tax (CGT) and the role the total super balance (TSB) will play in applying the new impost to super fund members.
Colonial First State head of technical services Craig Day pointed out that while a line has been drawn as to when CGT will apply, it was not yet apparent how that would be measured.
“In his speech, Treasurer Jim Chalmers intimated the government will somehow address the cost base of an asset to ensure that it’s only capital gains that accrue after the introduction of the new tax rules that will be subject to Division 296, so that is from 1 July 2026,” Day told selfmanagedsuper.
“How they are going to do that we don’t quite know, but it will be important because you could end up paying Division 296 tax on gains that accrued prior to the rules coming in.
“Working it out will involve a bit of complexity because fund members will potentially have two cost bases – one for normal capital gains tax and another for Division 296 – which makes the system rather complicated, depending on how it ends up working, and will create more thresholds and numbers we need to keep in our head.”
He noted there were also references to taxable income and adjustments for contributions and exempt pension income, but not withdrawals.
“What we are assuming is that funds will need to calculate their exempt pension income and add that to taxable income when they’re reporting realised income to the ATO,” he said.
“It does appear that it will be the funds overall income, including pension income, but it sounds like withdrawals will be excluded, and that needs to be reported to the ATO for them to do the calculations.
“It will be interesting to see how that process works in relation to the TSB rules that were in the current act as they were going to change those rules, which affected people with defined benefit pensions, and include the family law value of their TSB instead of the transfer balance cap value.
“We assume those changes will still proceed because while the TSB won’t be used to calculate earnings anymore, it does appear to be relevant in terms of exposing you to Division 296 in the first place if you are above the $3 million or $10 million threshold.
“From an equity perspective, it would be fair those changes did flow through to the new rules, particularly when you’ve got someone that is 85 with a lifetime income stream and a life expectancy of four to five years. It does seem unfair to use their current valuation based on a multiple of 16, which could really make the difference in whether someone’s going to be subject to these taxes or not.”
