Div 296 payment method inconsistent

DBA Lawyers Dan Butler SMSF Division 296

Paying the Division 296 tax from an SMSF would run counter to the narrative funds should not be releasing money before members meet specific age and work-based criteria.

The federal government is being inconsistent in its handling of superannuation in insisting early access to funds was not allowed, but creating specific rules to release them to pay the proposed Division 296 tax, an SMSF legal specialist has noted.

DBA Lawyers principal Dan Butler said the government’s unaltered plans to introduce the tax, which were recently endorsed by the Senate Economics Legislation Committee, indicate the proposed impost would be met by members despite the problems it was likely to create.

“In respect of funds with illiquid assets, such as property or bulk investments or farmers who have farmland, the Senate committee have said: ‘Tough luck, you should have an appropriate investment strategy that builds in liquidity.’ So there’s no amount of empathy there for taxpayers,” Butler said during a recent online briefing.

“So, can the member request a release of funds [from their SMSF] to pay this tax similar to Division 293? That is quite correct since the government obviously wants to get paid.

“Look at the farmers with land in their super getting very little yield, how are they going to pay the Division 296 tax? Remember the starting point is Division 296 is a personal tax like Division 293 and the government wants to get paid.

“So what do they do? Of course you can get your money out of super to pay the Division 296 tax.

“You can’t touch the money for most other purposes until you reach 60 and you retire, but you can obviously pull money out to pay tax, at least a federal tax.”

He also noted objections to plans to tax unrealised gains had also been glossed over by the committee in favour of a simple model that will create further irregularities in the super system.

“We don’t believe there will be consistency across large funds and small funds. It has been said this provision won’t impact large funds, but to an extent it will as the government has allocated money in the budget to address its defined benefit funds. It’s still going to impact all funds, even government funds,” he said.

“The University of Adelaide in a report on the Division 296 tax said if the government weren’t so greedy for the money now, it would be better off in the long run by not taxing those unrealised gains, so that is a reputable body saying the government is a little bit too big on taxing blue sky.”

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