An SMSF legal expert has identified a potential anomaly contained in the draft legislation for the implementation of the Division 296 tax on the earnings of total superannuation balances above $3 million with regard to the transfer balance cap and paying a pension to a fund member.
Cooper Grace Ward partner Scott Hay-Bartlem noted the issue has arisen from the fact the measure is not subject to indexation.
“Your total super balance includes pensions, so if we don’t index the cap, eventually your transfer balance cap will be higher than the $3 million cap,” Hay-Bartlem told attendees at his firm’s 2024 Annual Adviser Conference in Brisbane recently.
“Which means eventually you’re going to be able to have more money in pension than last year’s [transfer] balance cap, which just seems ridiculous. So [this tax] is really quite messy when you start looking at it.”
He pointed out if the bill moves forward without an indexation measure, there will be far-reaching consequences for many superannuants. As such, he and the SMSF Association had entered into discussions with the teal independents and the Senate crossbench to push for indexation to be applied to the $3 million cap.
“The $3 million cap is not indexed at all, ever, so [it’s going to capture] more and more people,” he noted.
“Yes, you may not pay the [tax] now, but what happens in 20 years’ time when you might be looking at retiring? Will you have more than $3 million? How has inflation been running?
“Your children [may] have more than $3 million. If you have a couple, it’s $3 million each until one of you dies, in which case it’s $3 million for both super balances. So there are a range of ways that the non-indexation of this cap will really start to bite in a couple of years.
“Indexation [of the $3 million cap] is something that the teals and the crossbench in the Senate are interested in and we’ve been lobbying them very hard to try and at least get indexation in.”