Family law split timing has Div 296 effect

Division 296 should be included in any discussion where family law super splitting is going to take place to ensure both parties understand how it may be captured under the new impost, DBA Lawyers director Shaun Backhaus has stated.

Backhaus said under the initial proposals for the new tax, superannuation that was subject to a family law split would be captured at member-level contributions or withdrawals as it was taxing a change in the total super balance (TSB), but that had changed under the revised version that will come into effect on 1 July.

“Now it makes more sense because we are dealing with the TSB at the member level where they fall within the scope of the tax and working out your proportion of earnings,” he said during a recent webinar.

“It is important to know how that works as soon as possible because for working out relevant super earnings it includes any super interest that is subject to a split,” he noted, adding the rules would treat a non-member spouse as having an interest where it was subject to a split, but remains an interest of the spouse.

He said this was important as it allowed for the splitting, and capture under Division 296, of defined benefit interests that cannot be transferred.

“You can have a payment split that won’t actually be recognised as being your interest, but it can be included with your interest for TSB purposes and then for Division 296 purposes,” he noted.

“Until the split occurs, it will be part of a member’s TSB as normal, but at the split it becomes the other person’s interest.

“This impacts how you calculate your TSB at the beginning or end of the year where you may have split and are now under $3 million, but may have been over that figure at the start of the year, and this will impact your share of the fund’s Division 296 earnings.”