SMSF practitioners should encourage clients to reset their thinking around the proposed Division 296 tax as many are confused as to how it will apply to their superannuation balances and how they should respond if it is implemented, an SMSF advice specialist has noted.
Deloitte national SMSF leader Liz Westover said her first recommendation to clients in regards to the tax was for them to forget everything they think they know about it.
“This is a brand new tax so don’t try and equate it to anything that’s going on at the moment. It’s new and that’s the way you have to think about it,” Westover said during a presentation at The Tax Institute National Superannuation Conference in Sydney today.
“If you can get them to wipe themselves clean and think about it in a new context, it is much easier to explain and get them to understand because they still come in with a variety of views around how they think it works and what they think it is.”
She suggested practitioners begin with the key areas that are commonly misunderstood in regards to the level of tax and how it applies.
“The way to start is by stating this is a brand new tax of 15 per cent on the movement in your total super balance if you’ve got more than $3 million at the end of the year,” she said.
“That’s basically it and it’s prorated, so if your balance is $3,000,001, you’re only going to pay this on the dollar over $3 million.
“So, it’s based on the reported balance and the ATO will aggregate the balances SMSFs report to make sure they get a total super balance and then it applies for everybody who’s got this level of funds from 1 July 2025.”
She noted while there were a range of exclusions, exemptions and special rules, practitioners should not start to unpack those with clients yet, but note which of them may be impacted if the tax becomes law.
“Given the uncertainty around this legislation, you don’t need to know all of these pieces in intimate detail, but what you do need to do is start to identify your clients that are going to be impacted by some of these exemptions and special rules,” she added.
“When the rubber hits the road and we get some legislation around it, you can then go back and say ‘I’ve got clients in this bucket’ and know some of these rules, but for now just know what people are going to be impacted and then you can go for it later when we have certainty around the law.”
