Tax-effect accounting will have a minimal impact on how much Division 296 tax a super fund member will pay and where it could be applied, the effort to do so may negate any gains, Heffron SMSF specialist Sean Johnston has stated.
Johnston pointed out the Division 296 tax will be applied based on two components, the earnings within a fund that can be applied to the members and their total superannuation balance (TSB) above the $3 million and $10 million thresholds, neither of which will change.
“If we look at what’s included in the calculation of fund earnings, you will see they are all taxable items,” he said during an online presentation today.
“What’s deferred tax accounting? It [means something] is not taxable. There’s no tax impact in the year you are accounting for it.
“So, at least to that part of the Division 296 calculation, there’s absolutely no benefit to doing tax-effect accounting. It will not change the fund earnings for any particular year because it’s not a taxable item.
“The second part of that calculation is the proportion over the $3 million or $10 million caps and, depending on where you sit, it may make a difference to those numbers because if you take up a provision for deferred tax, you are going to be reducing the balance of the members [exposed to Division 296].
“My problem with this is that deferred tax accounting tends to be pretty marginal in terms of its impact as we are talking about tens of thousands of dollars on balances that are multiple millions of dollars.
“Unless you are at the high end of the scale, it’s probably not going to make a lot of difference to what your end result is.”
He added if a fund member still wanted to employ this strategy, it would require a high level of detail from their fund accountant, which will be time-consuming and costly.
“You have to be very sure that those numbers are correct and I don’t know if the accountants out there charging an hourly rate, rather than a fixed fee, want to be going through every single one of those funds and recalculating those liabilities, working out what that tax is and making sure it’s correct,” he said.
“It’s going to take time for accountants to do that and tax agents are going to have to be really comfortable in those numbers.
“I don’t think I would consider this because it doesn’t seem to make a lot of value, but it could be a case-by-case basis.
“Don’t throw a blanket over this and say ‘yes’ or ‘no’ as there is nuance depending on the fund, the investments, where the tax sits and how much it’s going to cost you to do.”
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