Division 296 asset valuation caution

Dan Butler DBA Lawyers Division 296 Asset valuations SMSF Self-managed superannuation fund

SMSF members should look at the best valuation of fund assets to offset the impact of the Division 296 tax, but should be cautious about what value they record.

SMSF members who are likely to be impacted by the proposed Division 296 tax that may apply from the middle of next year can use high legitimate asset valuations to set their opening total superannuation balance (TSB), but should be cautious as to how they execute this strategy.

DBA Lawyers principal Dan Butler noted that given superannuation earnings for Division 296 tax purposes will be calculated at the end of a financial year using an SMSF member’s TSB at the start of the year, asset valuations should be considered.

“Generally, you would want to have the highest value to start off with because the highest value would, if you’re heading towards a Division 296 tax bill, mean you can minimise your effective superannuation earnings under that tax,” Butler said during a recent webinar.

A webinar attendee noted these higher asset valuations may be more useful for property and unlisted investments, leading to Butler to caution on the use of unrealistic valuations.

“It’s sort of a two-edged sword because some people may be thinking that at 30 June 2025 if I get my highest valuation I’m in a pickle, whereas if I get the value that may not be the highest, but just gets me under the limbo bar, then there is a bit of a paradox there.”

He reminded attendees that where a TSB was going to be less than a preceding year, SMSF members would be unable to recoup any previous Division 296 tax where asset values may have risen and fallen.

“Let’s say you have a person who has done very well and on the way up when the market’s been in their favour they’ve paid the Division 296 tax on the unrealised gains, but then the market collapses,” he said.

“They’ve paid all of this tax, but they only get a carry-forward loss and that’s one of the unsavoury components about paying tax on blue-sky gains.

“If the government wants to tax blue sky, please give a refund if this sort of situation arises, but it has decided ‘we want the tax’ and it’s not giving us the benefit of loss. All we get is the ability to carry forward that loss.”

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