The revised Division 296 tax should not be levied on those who have died before being assessed for the impost, according to The Tax Institute, which has also criticised the government for the short timeframes applied to consultations.
The institute made the call for deceased super fund members to be exempted from the proposed tax in a submission to Treasury, in which it noted the revised version issued for consultation on 19 December adopts a more restrictive approach than the original released in 2023.
The submission noted the transitional arrangements that deal with the application of Division 296 state a taxpayer would not liable to pay tax for the 2027 income year if they die before the last day of that year, that is, before 30 June 2027.
“This represents a further narrowing of the approach in the earlier draft bill, the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, which had been introduced in the parliament,” it added.
“The earlier draft bill’s proposed section 296-30 offered an ongoing exemption in respect of death from Division 296 tax, rather than limiting it to the initial year of operation.”
The Tax Institute stated the exemption should apply to any year where an individual dies before the Division 296 assessment for that year is issued and the tax payment due date has passed.
“This exemption should remain in effect until the superannuation interest is transferred to the appropriate beneficiary, as some death benefits can take considerable time to determine entitlements and, in the event of a legal dispute, the final payment of a death benefit could take years,” the submission said.
“We consider that a deceased estate should not incur Division 296 tax unless the payment due date occurred prior to death, as the deceased individual can no longer benefit from their superannuation account and should therefore not be subject to taxation.”
It also called out the repeated pattern of short consultation periods related to the government’s Division 296 tax plans, pointing out the release of the draft bill and explanatory materials just before the Christmas/New Year holiday period meant half of the consultation period took place when most stakeholders were unavailable.
“This has not left adequate time for stakeholders to comprehensively respond and raises questions about the overall effectiveness of the consultation process,” the institute added, noting the initial consultation period in early 2023 was only two weeks, as was the period to provide feedback on the original draft bill and explanatory materials in October 2023.
“This pattern of short consultation periods appears to be a recurring trend despite continual requests from stakeholders for adequate consultation periods.
“Rushed consultation undermines confidence in the process and increases the risk of poor policy outcomes and unintended consequences, potentially compromising the integrity of the tax system and adversely affecting the broader community.
“The previous Division 296 proposal was clear evidence of this.”
