The government’s decision to move from taxing unrealised to realised gains under the proposed Division 296 impost may cause super fund members to shift their allocations from income-generating investments to growth assets, according to Colonial First State head of technical services Craig Day.
Day noted the changes announced by Treasurer Jim Chalmers earlier this week will cause superannuants to reassess what assets they hold and what they could do to avoid large increases of income in their funds.
“Under the previous proposed rules, people were going to be discouraged from going into volatile or high-growth assets because they could see a lot of volatility and be exposed to a Division 296 liability, but not have the income to pay it,” he told selfmanagedsuper.
“Under these revised rules, what we are probably going to see is people preferring those high-growth type of assets that traditionally don’t pay a lot of income because they are not going to be subject to any Division 296 tax until they sell the asset.
“For instance, we see people thinking about global equities as they don’t really pay dividends in those sorts of situations.”
Day added this may be a way to manage the Division 296 tax in the short term, but fund members will still need to deal with income from asset sales at some point.
“What happens when you decide to sell those assets?” he asked.
“There might be a strategy for people to hold these assets and then in the year they are going to realise them, withdraw superannuation to get below the $3 million threshold so as not to have a large Division 296 liability on the capital gain that’s coming into the fund in that particular year.
“This could also lead to SMSFs running different investment pools for different members so members with balances below $3 million may invest more traditionally, whereas members over and above $3 million might prefer high-growth assets that don’t produce a lot of income.”
