SMSF practitioners and their clients should aim to separate the Division 296 impost from the other taxes paid within a fund to have a better understanding of what has been proposed and how it will impact them, according to the head of Heffron.
Heffron managing director Meg Heffron said there was a need to shift people from thinking about the proposed Division 296 tax as an impost that should look and feel like others in superannuation when that was not the case.
Speaking during a webinar yesterday, Heffron said the government’s messaging about the headline rate for the tax had added to the confusion.
“Comparing fund taxes and Division 296 tax, they’re both 15 per cent and that’s why the government talks about the latter as being 30 per cent on high balances, which doesn’t really make sense to me because it’s 15 per cent of one number plus 15 per cent of a completely different number,” she pointed out.
“They don’t add together to be 30 per cent and to show you how different those numbers are look at the sort of things that get picked up in income.”
She noted while interest, rent and dividends were included for the fund’s taxable income, as well as for earnings, for Division 296 the sale of income-earning assets was treated differently.
“When you sell assets, in terms of your fund tax, you get a big bill because of the growth of that asset, which gets taxed all at once in the fund,” she said.
“Nothing happens though with Division 296 because that is all about taxing growth in the asset as it happens.”
She also highlighted there were differences where income was reduced, particularly where funds were in pension phase.
“Funds that are paying pensions get a partial exemption on their income, but that is totally ignored for Division 296 tax, which does not care whether it’s pension money or accumulation money, it all flows through to the [assessable] earnings,” she stated.
“Think about fund taxes. You get tax deductions for certain expenses and insurance premiums and it matters whether they’re deductible or not.
“When it comes to Division 296 tax, everything is deductible because all of those expenses paid out of a super fund impacts how much it grows.
“Also, you don’t get a tax deduction for your fund tax, but Division 296 is looking at what makes my super fund grow and one thing that takes growth away is paying tax, so fund tax effectively reduces earnings for Division 296.
“I hope that might be useful in jogging your thoughts about how to think differently about Division 296 tax versus fund tax.
“With the questions I get about this tax, you can see that what the person is thinking is it should feel and look like fund tax, but they don’t work anything like each other.”
