An SMSF technical specialist has suggested the proposed Division 296 impost is offering practitioners an advice opportunity to assist clients with tax minimisation strategies with a simple comparison between the measure and the applicable personal tax bracket.
To this end, Accurium head of SMSF education Mark Ellem noted the critical marginal tax rate in any Division 296 analysis will be that which is applied to individuals who have assessable income in excess of $135,000 a year, who will pay 37 per cent tax for every dollar above that threshold.
Further, Ellem pointed out the analysis had to be performed in the theoretical context that the new tax introduces a 30 per cent impost for people with a total super balance of $3 million or more.
“With the introduction of this Division 296 measure, this additional 15 per cent tax on super earnings if we put to the side that issue that super earnings is not taxable income, we can then say we’re comparing capital in excess of $3 million [and the income it produces against income the individual] would have in excess of $135,000 [because] that level is where the individual’s tax rate moves above 30 per cent,” he told attendees of the most recent Accurium technical webinar.
“So if we just focus on [the idea Division 296] is a 30 per cent tax on income attributable to capital in excess of $3 million, that’s 15 per cent inside the super fund and the extra 15 per cent tax levied on the individual, then [we have to consider the situation] if that capital was in [the client’s] own name and whether it would result in [them paying] more than 30 per cent tax.
“So if you’ve got an individual with more than $3 million in super, [you have to determine] what’s their personal tax rate … If they’re earning less than $135,000, then they can have some income from that capital in their own name and pay no more [tax] than 30 cents in the dollar.
“Here’s the opportunity for you as advisers, accountants and tax agents for your clients to, dare I say it, compare the pair [as to] what effect this proposed Division 296 tax is going to have on your client, where they’ve got more than $3 million in super, [if they retain] that capital in excess of $3 million inside of super versus if it was held in another [tax] structure, including in their own name.”
Ellem called it the silver lining in the black Division 296 cloud for practitioners.
