A suggestion from the government that the proposed Division 296 tax will only cause a modest change in the concessional treatment of superannuation earnings is a failure of basic maths and the real figure will be well above 30 per cent, according to a senior SMSF executive.
Accurium head of SMSF education Mark Ellem called out recent comments from Assistant Minister for Treasury Andrew Leigh misrepresented the cumulative size of Division 296 tax on superannuants with balances over $3 million.
Speaking at SMSF Professionals Day 2025 in Sydney today, Ellem referenced a statement made earlier this week where Leigh said: “Our aim is to ensure that those top 0.5 per cent of people pay a slightly higher rate of tax. They’re currently paying a 15 per cent tax rate, which will go to a 30 per cent tax rate, still below what they would earn elsewhere.”
Ellem replied: “What a load of codswallop. Someone needs to go back to high school and learn maths and how to add fractions.
“Fifteen per cent of taxable income plus 15 per cent of superannuation earnings does not equal 30 per cent. You need to have a common denominator.
“We can go back to our high school maths and ask a teenager: ‘Can you add fractions with different denominators?’ No.
“If you do the correct maths and work out what percentage of the additional Division 296 tax is of taxable income together with the proportion of tax paid by the fund on the member’s interest, you can get up as high as a 50 to 55 per cent effective tax rate.
“This premise that Division 296 just increases the tax rate from 15 per cent to 30 per cent is mathematically wrong.
“The only way it works is if the fund’s investments do not have capital growth, that is, if all the assets are in a fixed interest bank account and there’s no unrealised gains or losses.
“That’s when you have a common denominator effectively because superannuation earnings will equal taxable income.”
