A senior superannuation executive has highlighted the implications the proposed Division 296 tax will have for SMSF administration in order to accurately assess a member’s total super balance for the application of the new impost.
To this end, Colonial First State head of technical services Craig Day pointed out the current administrative treatment of structured settlements relating to personal injury would have to be modified so as not to be included in the calculation of a person’s earnings for the measure.
“If you know how the self-managed super fund annual return works, [insurance proceeds are lumped in] with your investment return. If they kept on working like that, the insurance proceeds will look like earnings. They are going to have to strip those amounts back out and report them as a separate stand-alone figure,” Day told delegates at the SMSF Association Technical Summit 2025 held in Sydney last week.
Having established this practice, he emphasised how the processes of SMSF practitioners and service providers will be affected once the new tax is implemented.
“What all this means from a practical perspective is if you’re an administrator or financial adviser, you need to make sure that if there has been something like an insurance event and let’s say there is $1.5 million of TPD (total permanent and disablement) [payout that has] hit the fund, that it gets properly reported as a separate amount,” he explained.
“Now admin systems are going to have to update their systems to pick this up.”
According to Day, neglecting to go through this process will lead to a situation no practitioner will want to have their clients face.
“At the end of the day, what you do not want is a client suffering a permanent incapacity [compensation payout] just being assessed with a massive Division 296 liability because someone forgot to strip that amount out and report it correctly in the right [annual return box],” he warned.
