The possible implementation of the Division 296 impost in relation to SMSFs should be used to initiate discussions about death benefit charges and reducing the size of large balances, given members over the $3 million mark will have to pay some form of tax, an administration provider has noted.
Heffron managing director Meg Heffron said while it was recognised the proposed tax would reduce the wealth of super fund members with larger balances, they should begin to look past the impact of the impost to other strategies.
“These people will be poorer if the Division 296 tax comes in, but when it comes to advising them what to do, it actually doesn’t matter that they’re going to be poorer. What matters is weighing up all the alternatives and are they going to be poorer leaving money in super than compared to those alternatives,” Heffron said during a presentation at the Heffron Super Intensive Day in Sydney today.
“The thing I have seen in my modelling so far is you look richer taking the money out and then you get poorer again [due to taxes outside of super], so you end up in roughly the same space.
“Now you can look at that as a terrifying environment to be making decisions in or see it as liberating because it means there are no bad decisions. It takes the pressure off as there is no urgency to move money out of super and you’re not an idiot if you end up paying Division 296 tax.”
She added it also allowed SMSF advisers to reopen the subject of death benefits tax and helping clients to avoid dying with large super balances.
“When we have that conversation with clients, we have been telling them we can solve the death benefits tax problem, which is a massive problem for your kids, but if we do, you have to put up with being a bit poorer during your lifetime,” she said.
“However, Division 296 means you’re going to be a bit poor either way and so you have the freedom to think about death benefit taxes if and when you want to.
“It’s not crazy to leave the money in and paying Division 296 tax won’t make you materially poorer than not paying it. Equally, taking money out won’t make you materially poorer either and so you can work out what works for you to minimise death benefit taxes and that is quite liberating.”
