SMSF practitioners and trustees will need to adjust their thinking around the attribution of earnings to members under the Division 296 tax, with a technical specialist noting key shifts from existing practices.
Heffron SMSF technical and education services director Leigh Mansell said currently an SMSF would use a weighted-average concept when attributing earnings to member balances, except where there are specific asset allocations for a particular member.
“We don’t necessarily have that as the norm and most of us have the bulk of our SMSF clients with a big pool of assets and every member has got a proportionate share of that big pool of assets,” Mansell said during a technical update today.
“I’m assuming we have other clients that might be in a fund together and have different investment strategies and a completely separate portfolio of assets, so everything gets accounted for separately.
“When it comes to the Division 296 earnings for a fund, where you have those separately allocated investments, you have to ignore them in terms of divvying up earnings for the new tax purposes.
“It is all going to be based on weighted averages and you ignore those specific allocations. The weighted averages will be determined by an actuary, so we will be getting an actuarial certificate and this will be a new process for a lot of us.”
She gave the example of an SMSF with two members, both in accumulation phase, and one member has a balance of $4 million, which would put them in scope for Division 296, but since all members are in accumulation phase has never needed an actuarial certificate.
“We will need a process change to nudge us, as well as an actuarial certificate in order to work out how to divvy up those Division 296 earnings amongst the members of the fund,” she added.
“That is how it is going to work for our world. We are still doing the financial statements and the member statements exactly the same as normal, but separately, for Division 296 purposes, we are going to do a completely separate calculation for earnings and then divide those based on a weighted average.”
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