The SMSF Association is still apprehensive about the operation of the Division 296 tax given the quick pace at which it passed through parliament and the lack of regulations that will support the new impost.
Association chief executive Peter Burgess said the professional body was concerned about the unintended consequences, complexity and long-term effectiveness of the tax after parliament voted to pass it into law yesterday.
“The legislation introduces what can only be described as an ‘ugly tax’, layering significant complexity across the superannuation system while raising questions about whether the long-term revenue generated will justify the substantial cost of implementation,” Burgess added.
“Significant industry effort and costs will now be required to implement and explain a tax that may ultimately have only a limited and diminishing revenue base.
“Over time, the pool of wealthier super members affected by this tax will shrink as benefits are compulsorily paid out.
“Under the existing contribution rules those amounts cannot simply return to the superannuation system, meaning the number of individuals captured by this tax will naturally decline over time.”
He noted the wider superannuation industry had to prepare for the implementation of the new tax rule despite regulations that determine its operation having yet to be released.
“These compressed timelines will inevitably increase implementation costs and may leave many affected individuals with little time to understand the changes, increasing the risk of misinformation, non-compliance and unexpected tax outcomes,” he said.
Colonial First State head of technical services Craig Day said with the Division 296 tax regime becoming a reality at the start of the next financial year, financial advisers and accountants should be alerting clients of its relevance to them.
“We know this thing is going to become law, so the first thing we want to do is think about identifying my impacted clients that are over the $3 million and $10 million [thresholds],” Day said during a webinar on the tax today.
“Also think about clients likely to exceed $3 million in the near future. I’m looking at clients in the $2 million to $3 million range and saying: ‘Is there a chance they might get over $3 million at some point in the future?’
“Why is that important? I want them to think about whether to make the choice to reset or crystallise a new Division 296 cost base.”
He also noted clients who as members of a couple have less than $3 million may also be caught up by the tax in the event one of them dies and the survivor receives a death benefit pension that pushes them past that threshold.
