Super fund members with a total super balance of more than $3 million when the revised Division 296 impost is proposed to start should avoid trying to reduce that figure as the tax burden is unlikely to be onerous, according to an SMSF specialist.
Cooper Partners director Jemma Sanderson said while the total super balance (TSB) of a fund member will still be the determining factor as to whether the Division 296 tax applies, they need to remember how the impost will be applied.
“Like the previous rules, the closing TSB will still have a substantial impact on the way this tax is going to operate because that closing balance determines the extent to which you’re over the $3 million or $10 million threshold,” Sanderson said during a presentation at The Tax Institute National Superannuation Conference held in Sydney last week.
“If you are under [$3 million], you are not subject to this tax, but if you are close, you might flick up and down between the thresholds.
“I’m sure you had clients saying they were absolutely not paying tax on unrealised gains and pulled money out of super before 1 July and are now rueing the day you told them to not act hastily.”
In this vein, she noted some people might be considering their TSB again if they are close to or over the $3 million threshold and pointed out they are never likely to pay the full additional 15 per cent on earnings on balances over $3 million.
“The original draft laws were a function of how assets had increased in value so the closing balance then determined the extent to which you were over $3 million, and therefore the proportion of the 15 per cent tax that was on those earnings.
“The messaging at the time was it would be up to 30 per cent tax on high super balances, but it was never going to be 30 per cent, and with these new rules it will never be 40 per cent either; it just can’t be because it’s a proportion of the earnings.
“No one wants to pay more tax than they feel like they should. I understand that, but I’m also averse to people pulling money out just so they don’t pay a couple of thousand in tax with all the downsides of that and the opportunity cost of what they’re potentially missing out on.”
