The new Division 296 tax on superannuation balances may intersect with the laws allowing fund members to allocate pension reserves, thus requiring more careful planning in how those amounts are withdrawn from legacy income streams, an SMSF lawyer has noted.
DBA Lawyers director Shaun Backhaus said while pension reserves are no longer common as they are tied to legacy complying lifetime pensions, life expectancy pensions and market-linked pensions, the draft regulations for the operation of the Division 296 impost appear to capture income from them when calculating what interests in super will be covered by the tax.
“I want to point out the [Building a Stronger and Fairer Super System Act 2026] draft regulations subsection 295-65.20 says when you are determining attributing amounts to super interests, you take regard of the following matters: ‘earnings associated with the interest, including amounts of earnings that are directed to reserves, and regardless of whether or not the earnings are reflected in an account balance associated with the interest’,” Backhaus said during a recent online briefing.
“This regulation is indicating that income on reserves will be pushed into working out your Division 296 tax amount, so maybe you are meant to be allocating that to members.
“The question of whether reserves should have income allocated to them is not that clear and they are hard to deal with, but with Division 296 they might need to be further considered.
“If you have reserves, think about your options to allocate them. Not too long ago [in December 2024] we had the reserve allocation rules relaxed so it’s a lot easier, at least, to allocate reserves to the person that was receiving that pension and even those reserves that relate to a pension that no longer exists.
“Given those changes, any reserves probably need to be looked into in detail.”
The impact of the Division 296 tax will be discussed in greater detail at SMSF Professionals Day 2026, co-hosted by selfmanagedsuper and Accurium. Click here to secure your seat.
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason