Pensions, Superannuation, Tax

MLP valuations under Div 296 still unclear

Market-linked pensions Defined benefit pensions Division 296 tax Valuation Treasury

Guidance on the treatment of market-linked pensions in relation to the Division 296 tax has yet to clearly outline how these interests will be valued under the cap.

A specialist lawyer has pointed out the valuation of market-linked pensions (MLP) under the Division 296 tax remains unclear even after the introduction of a related regulation into the Income Tax Assessment Act 1997.

“The current way we value [MLPs] for total superannuation balance purposes in section 307-230 is getting repealed. Section 307-230 is being amended and 307-230A is coming in,” DBA Lawyers senior associate Shaun Backhaus told attendees of a recent webinar.

“However, [the new regulation] doesn’t actually tell you how you should be valuing [an MLP]. At the moment, it says you should be valuing it at market value, but it removes that and doesn’t put anything else in.

“It says that the regulations, which don’t exist yet, will be able to provide valuations for various different things. Presumably the plan is that MLPs and a few other things will have regulations made which will tell you how they get valued for the Division 296 tax and normal total super balance arrangements as well.

“So that’s one to watch out for. It’s probably going to be market value, so it shouldn’t change from the way they are valued now, but there isn’t law for it and nothing is in [draft legislation form].”

In a separate but related announcement, Treasury has released an exposure draft regulation to clarify how defined benefit pensions will be valued for the purposes of calculating a Division 296 tax liability.

As proposed in Treasury Laws Amendment (Measures for Future Instruments) Instrument 2023: Better Targeted Superannuation Concessions (draft regulations), defined benefits contributions, which are a notional amount, are counted towards an individual’s adjusted total super balance for the purpose of the Division 296 tax.

However, the draft regulation appeared to make a distinction for members still in the accrual phase.

“The amount of a contribution made to a superannuation fund for an individual in respect of a defined benefit interest that they have in the fund during an income year is to be disregarded when determining the individual’s contributions total, if they are an accruing member of the fund for the financial year corresponding to the income year,” the draft exposure regulation stated.

“This modification is necessary to ensure consistent treatment of all defined benefit interests, with the Schedule 1AA methodology to be used, rather than any actual contributions. This will ensure there is no double counting of contributions for defined benefit interests.”

The exposure draft regulation is open for industry consultation until 26 April.

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