The cost base reset for capital gains proposed in the revised Division 296 bill is flawed and may tax historical gains outside the bounds of the new impost, the Institute of Financial Professionals Australia (IFPA) has claimed in a submission to Treasury.
IFPA stated there were a number of key elements in the draft bill that needed to be redesigned, including the plan to use the highest total superannuation balance during a financial year to decide if someone would be taxed under Division 296, and echoed the SMSF Association in noting it would produce inequitable and unworkable outcomes if legislated.
The submission noted the cost base reset methodology – in which the cost base of all capital assets and investments would be set to the market value of those assets at 30 June 2026 and could potentially reset some at lower values – was “fundamentally flawed” and failed to achieve the stated purpose of preventing Division 296 from taxing historical gains.
IFPA board member and superannuation technical and policy committee chair Phil Broderick said SMSF members could not selectively reset assets and had to adopt an ‘all-or-nothing’ approach.
“If assets that have fallen in value have their cost base reset lower, Division 296 tax liabilities can end up being higher than if they had not received the cost base adjustment. Clearly that should not be the case for a transitional rule that is supposed to prevent taxing pre-1 July 2026 capital gains,” Broderick said.
The submission noted: “Under the ‘all-or-nothing’ cost base reset election, members cannot discriminate between assets. As a reset may be preferable for some assets and not others, this approach creates inflexibility insofar as members managing their tax affairs.
“Members should be allowed to reset the cost base on all, some or no assets as applied for the transfer balance cap transition back in 2017.
“Alternatively, the same outcome might be achieved if the reset amount is set at the greater of the asset’s cost base or its market value at the reset date.
“This would align more closely with the underlying policy intent by preventing double taxation of gains without penalising members if asset values [have] fallen since their acquisition.”
IFPA highlighted other issues, including the exclusion of indirect assets and failure to properly exclude pre-30 June 2026 gains risked taxing historical gains, particularly for larger balances.
The industry body maintained its long-standing view Division 296 should not be legislated, but if the government were to proceed, Treasury should adopt the proposed amendments to ensure the new impost operated in line with its stated policy intent.
