Pensions, Superannuation, Tax

Div 296 defined benefit rules poorly designed

Division 296 Defined benefit interest Regulation Treasury Chartered Accountants Australia and New Zealand CPA Australia Financial Advice Association of Australia Institute of Public Accountants

The draft regulations prescribing how the Division 296 tax will apply to defined benefit interests reflect the same poor design as the overall legislation, four industry bodies have claimed.

The poor design of the proposed Division 296 taxation laws has carried over into supporting regulations for calculating the treatment of defined benefit interests under the impost, according to a group of industry bodies.

Chartered Accountants Australia and New Zealand, CPA Australia, the Financial Advice Association of Australia and Institute of Public Accountants also noted the draft regulations may need immediate updating while lacking critical information.

The industry bodies made the claim in a submission to Treasury in regards to the draft regulations, titled Treasury Laws Amendment (Measures for Future Instruments) Instrument 2023: Better Targeted Superannuation Concessions.

The four groups noted that under the draft regulations, notional family law valuations will be used to determine a taxpayer’s proposed Division 296 tax liability for defined benefit interests, however, these values will change before the measures apply.

The submission said the values were contained in the Family Law (Superannuation) Regulations 2001, which were due to sunset on 1 April 2025, and given the Attorney-General’s Department was still consulting on new regulations, the draft Division 296 measures would have to be updated before they are applied.

The industry bodies noted an additional problem was the potential new values were being withheld from public view.

We also note that the Attorney-General’s Department’s proposed Family Law (Superannuation) Regulations will contain revised actuarial factors which are used to determine the notional actuarial value of a defined benefit pension,” the submission said.

“As part of the Attorney-General’s Department’s consultation, it has elected not to release these revised factors, stating in a related consultation paper ‘It would not be appropriate to publish these methods or the factors so far in advance of their commencement as this may influence parties’ behaviour in resolving disputes about family law property division’.

“Conceptually we believe that notional family law valuations for defined benefit schemes will often give the most accurate value for benefits in these types of schemes.

“However, given the common factors will change … we cannot definitively say if the proposed valuation approach is acceptable or unacceptable.”

The submission noted the current Family Law (Superannuation) Regulations 2001 permit the relevant minister to approve factors specific to certain superannuation interests and 38 super plans, including most federal government defined benefit schemes, have calculation and factors approved by the minister.

“A quick review of these approved ministerial methods and factors shows that many of the formulae are incredibly complex. Even the standard calculation method is complex,” it said.

“We therefore have a reasonable expectation that only experts in defined benefits will be able to assess if a super fund has calculated the notional defined benefit value for the Better Targeted Superannuation Concessions measure correctly.

“This is less than ideal and will only lead to complex inquiries for scheme administrators to answer and additional overall administration costs.

“It is our overall view that these draft regulations demonstrate again that the Better Targeted Superannuation Concessions [measure] is poorly designed and needs to be redesigned.”

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