A sector technical specialist has warned accountants and advisers a strategy involving the delay of commencing a death benefit pension in order to manage Division 296 liabilities is unsound and may lead to other compliance problems.
Accurium head of SMSF education Mark Ellem noted this action is one that might be contemplated to take advantage of the Division 296 tax rules, whereby a person is classified as ‘in scope’ for the new impost if their total super balance is above the $3 million threshold either at the beginning or end of a financial year after 30 June 2027.
To demonstrate how this strategy would work, Ellem put forward a situation SMSF member died in December 2027 with a pension that was non-reversionary and with his death benefits to be allocated to his spouse.
The intention of his wife was to commence her own pension from the death benefit but doing so would result in the spouse’s total super balance exceeding $3 million and being captured by the Division 296 tax provisions for the 2028 financial year if performed within six months.
“Could we delay commencing the death benefit pension until after 30 June 2028 so the spouse has no Division 296 tax liability because her total super balance stayed below $3 million in 2027/28?” he asked delegates at SMSF Professionals Day 2026 in Brisbane last week.
“From a Division 296 perspective that would work.”
However, he then recognised a different compliance issue SMSF members would have to consider when contemplating this course of action.
“But then we’ve got the lurking SIS (Superannuation Industry (Supervision)) Regulations that say you have to cash a deceased member’s benefit as soon as practicable,” he explained.
“Dying in May and cashing in September could be considered as being as soon as practicable. But dying in December and not cashing the death benefit until July of the following year may be questioned.”
According to Ellem, more compelling reasons for delaying the commencement of a death benefit pension, outside of Division 296 liability management, would be needed in these circumstances to justify the strategy.
Darin Tyson-Chan
Editor
Darin is the founder and publisher of Benchmark Media, an independent publishing house whose mastheads include financialobserver, selfmanagedsuper and smstrusteenews. He has been covering the financial services space for over a decade and in this time he has worked for a variety of trade publications. Darin has also written for the Money section published in The Sydney Morning Herald and The Age.
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