Contributions, Death benefits, Strategy, Tax

Division 296 exemptions narrow

Division 296 tax Personal injury Contributions Death benefit pension Exemption

Superannuation members subject to a specific set of circumstances will not be caught by the proposed tax on total super balances over $3 million.

A technical expert has confirmed the limited circumstances that will not attract Division 296 tax regardless of whether the total super balance of the individual involved is above the specified $3 million threshold.

According to BT technical consultant Matt Manning, one such circumstance is where a member makes a personal injury contribution into their super fund.

“This broadly is a type of super contribution to facilitate lump sum workers compensation payments into super – structured settlements, court-ordered injury payments. Such people are exempt from Division 296 [tax] forever,” Manning said.

He pointed out certain death benefit pensions will also not be captured by the proposed new tax.

“Division 296 tax won’t apply to child death benefit pensions [either],” he noted.

He also acknowledged other situations where the tax on total super balances in excess of $3 million will not apply even though they are not classified as an official exemption from the measure.

“While not specifically listed as an exemption category, constitutionally protected schemes and judges’ pensions are effectively exempt from Division 296 [tax],” he revealed.

However, he recognised the treatment of these items for the purpose of the proposed tax is not straightforward.

“[Here] the total super balance [includes those] pensions in the Division 296 calculations. So the value of such schemes is included in the Division 296 calculation, but [the individuals involved] don’t actually pay tax on the taxable super earnings for such schemes,” he noted.

It means these people would only be subject to Division 296 tax for any superannuation earnings they may have had outside of these schemes, he said.

“In practice we’re really talking about former politicians and judges,” he said.

He confirmed members who pass away during a particular financial year will also escape paying the new tax. However, this does not apply to individuals who die on 30 June of a particular income year.

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital