Government plans to ensure Division 296 liabilities cannot be reduced to zero in the years after the death of a superannuant are likely to saddle their executors with additional burdens and make the task even less attractive, DBA Lawyers principal Dan Butler has claimed.
Butler stated draft regulations recently released regarding the operation of the Division 296 legislation clarified where a trustee did not pay out a deceased member’s death benefits until a financial year after the one in which the member died, the tax would not be reduced to zero but rolled back to the year of death.
“If you die during the income year, the rule for working out the deceased individual’s relevant super fund earnings for the [Division 296] interest for the year is the income for the same period of that fund, and any later income year of that entity, which includes any period between the death and the time when the lump sum or pension is paid out,” he said during a presentation at the Institute of Financial Professionals 2026 Annual Conference in Melbourne late last week.
He added this was outlined in section 296-70.04 of the draft regulations, noting “when you die in a particular year, if there is a delay to payment out of that member’s interest, the earnings in respect of that member’s interest as a deceased member will be brought back into the year of death to calculate whether there is Division 296 earnings, which would then be taxed”.
Given some disputes regarding an estate, including superannuation, could drag on for many years, this means legal personal representatives (LPR), such as executors, could be saddled with dealing with liabilities of the deceased member, he said.
“Let’s say you have a client who dies in 2029 and there’s a dispute or great difficulty realising an asset so it takes four or five years to work it out and you have to bring back four or five years’ subsequent earnings into the year of death,” he said.
“It’s going to be very interesting how this plays out in practice, however, I am not sure whether Treasury has really put its mind to what happens in practice.
“For large and small funds, it’s going to be a nightmare with all sorts of problems because if you have someone who has died who wants to be their LPR, you are going to get shed all these liabilities that are unknown to you.
“We see professionals who have put themselves or their clients in that role and they get slammed when they get into the witness box and criticised that they didn’t have proper file notes or made a bad decision or overpaid for something.
“We have seen it where tax liabilities come up and the ATO is chasing the executors for money, but it has been paid out of the fund and the estate’s been wound up, so the executor is wearing the can.
“It’s not a good design, but that’s where we are at the moment and I think there’s going to be a lack of executors in the future.”
