The SMSF Association has welcomed the release of draft regulations regarding the operation of the Division 296 tax, but has criticised their late arrival and the short timeframe to review them, and noted there were still concerns about the application of the new impost on deceased members.
The government released the Building a Stronger and Fairer Super System Act 2026 – Draft Regulations today for consultation and called for responses to be submitted by 7 April, which gives an effective review period of 13 working days.
“While we welcome consultation on the draft regulations, it is disappointing that this level of detail wasn’t available earlier in the legislative process, especially given the relatively short consultation period which runs into Easter,” SMSF Association chief executive Peter Burgess said.
“A key concern is post-death attribution of earnings. Applying tax to earnings after death is a significant outcome that wasn’t clearly evident from the legislation or explanatory materials and raises important questions about how Division 296 will operate in practice, particularly where the payment of death benefits can span multiple years due to matters outside of a trustee’s control.”
SMSF Alliance principal David Busoli said the regulations shifted how the government would view earnings for a deceased member in the years after their death.
Busoli pointed out the legislation for the tax indicated that during the first year of operation for Division 296, that is, 2026/27, the tax rate would only be determined by the super fund member’s total super balance (TSB) at the end of the year, and if they died during the year, they would not be subject to the tax.
In subsequent years, the member’s TSB, for Division 296 purposes, would be the higher of their TSB at the start and end of the financial year, but if a member died, only the start-of-year TSB would apply and no tax was payable in the following years if a death benefit had not been settled by the end of the year of death.
“All of this has not changed. What has changed is our interpretation,” Busoli said.
“We believed that if the death benefit payment was not finalised by 30 June 2028, resulting in asset sales being delayed to the 2029 financial year, the earnings attributable to those asset sales would not be subject to Div 296 tax. This is not the case.
“The [draft] regulations provide for the earnings, including asset sales, that occur in the 2029 year until the death benefit is paid, to be included in the 2028 Division 296 tax return. This effectively negates the ‘strategy’ of dying late in the financial year.”
Burgess said apart from the post-death attribution of earnings, the association also saw the potential for different treatments of negative earnings for Division 296 purposes depending on the type of superannuation interest held by an individual.
“There also appear to be situations, such as SMSFs with unallocated reserves, where members could pay tax on earnings from amounts they may not ultimately receive. This raises questions about how the rules align with member entitlements,” he added.
