Compliance, Legislation, SMSF, Tax

Div 296 myths already present

Division 296 tax SMSF Myths

Myths regarding the operation of the proposed Division 296 tax are already evident and may cause unnecessary and flawed SMSF strategies.

A taxation specialist has revealed certain misconceptions regarding the Division 296 tax have already surfaced, shaping incorrect attitudes toward the new impost on certain superannuation members.

“I was talking to a training group a couple of weeks ago and they actually said to me if you are taxed under this measure, you’ll receive a [tax] credit for it in the super fund,” Accurium head of tax education Lee-Ann Hayes told delegates at SMSF Professionals Day 2024 co-hosted by selfmanagedsuper and Accurium in Melbourne yesterday.

To this end, Hayes was quick to dispel this idea.

“I’m not entirely sure where that message came from, but no, that’s incorrect. They are completely separate. The taxation of the super fund has nothing to do with what then happens under the Division 296 tax,” she noted.

“This is completely outside the taxing of the fund and has to be dealt with by the individual.”

Accurium head of education Mark Ellem also noted the belief the proposed policy potentially amounted to a 30 per cent tax on SMSFs, being the standard 15 per cent charge plus the 15 per cent possibly incurred through the proposed measure, is wrong.

“I don’t know about you, but my high school maths says you can’t add two fractions together when the denominators are different,” Ellem said.

“One’s 15 per cent of taxable income, a tried and true concept, and one’s 15 per cent of this thing called earnings, which is an arbitrary formula.”

He pointed out example 1.2 detailed in the explanatory memorandum for the Division 296 tax draft legislation could actually result in the subject Jess effectively having a tax rate of 50.75 per cent applied to her.

To eliminate any adverse consequences from actions based on misconceptions like these, he suggested the following approach.

“What’s our approach to the Division 296 tax? Wait for the passage of legislation. Don’t act too early,” he advised.

“Once it’s passed and we know what changes are in it, then we can identify our clients who are affected and look at those situations on a client-by-client basis to ascertain whether or not they should be retaining an amount of retirement capital inside of super.”

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