The treatment of total superannuation balances (TSB) for Division 296 purposes in the transitional year of its implementation highlights one of the key flaws of the proposed tax, SMSF Association technical manager Fabian Bussoletti has stated.
Speaking at the association’s National Conference 2026 in Adelaide today, Bussoletti pointed out Division 296 tax would apply if the TSB at either the start or end of the financial year was above $3 million, except in the transitional year when only the end-of-year figure would be considered.
He said this one-off application, in comparison to latter years, highlighted how the new impost overlooked the impact and timing of market events and he used the case of a member, June, whose TSB moved above and below the $3 million threshold.
“Her TSB at the start of the transitional year, 2026/27, was $3.3 million and at the end of the year was $2.5 million,” he said.
“In this transitional year because we’re only interested in the end-of-financial-year TSB, she will not be subject to Division 296 tax.
“If we then look at the 2027/28 year, her end-of-financial-year TSB becomes her opening TSB, so that $2.5 million is now the starting TSB.
“Her end-of-year TSB in the second year is $3.3 million so will she be liable for Division 296 tax? We look at both figures and one of them is above $3 million, so she will be liable.
“Fast forward to the year after and her starting TSB is $3.3 million and her end-of-year TSB is $2.3 million and she will be liable for tax because one of them is above $3 million.
“She’s liable for Division 296 tax in both of those years and that highlights one of the criticisms this new model attracts because she had an increase in the first year and that might have happened in the last month of that year.
“It might have only been a very temporary spike, which obviously fell back down to $2.3 million in the following year, and yet that spike has meant she is subject to the tax for two financial years.
“Similarly, in the second year, we started off with a $3.3 million TSB, and she lost [$1 million] to get it down to $2.3 million and might have lost that significant amount on the first day of the financial year, and yet is still subject to the tax because of her opening TSB.”
