Superannuation, Tax

Div 296 tax carries penalty rates

Division 296 tax Tax liability penalty interest rates total super balance $3 million

The penalty interest rates applied to unpaid tax liabilities under the proposal to tax total super balances over $3 million have been defined.

A superannuation technical specialist has highlighted the penalties SMSF members face if they are assessed as having a Division 296 tax liability and either do not or cannot pay the impost.

In the instance where an individual does not pay the liability, penalty interest will be applied to the amount, BT technical consultant Matt Manning noted.

“What happens if they don’t pay? Basically they accrue interest on what [the government] is calling the reduced rate of the Division 296 general interest charge rate as opposed to the existing general interest charge rate that applies to, among other things, normal income tax liabilities,” Manning said during a webinar today.

“It’ll effectively be the base rate they use for these sort of penalties [and] 7 per cent is the standard rate. This for Division 296 will be that base rate plus 3 per cent. [That’s] basically 4 per cent lower than our usual penalty rates.

“So obviously by the time this comes up the rate will have changed. But just to give you an idea [of how it might play out], currently the standard general interest charge rate is 11.38 per cent so if this is also the rate at the time [the new tax is implemented], the Division 296 general interest charge rate will be 7.38 per cent.”

He pointed out the penalty rate will continue to be applied on a cumulative basis if payment of the debt is unrealistic or requires some drastic action from the superannuation member.

The legislation for the new tax details the accepted timeframe within which super fund members must extinguish the tax bill, he said.

“Clients have 84 days to pay the Division 296 liability and 60 days to elect for this liability to be paid from their member balance of one or more of their super funds,” he said.

Key words:

Division 296.

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