The release of an exposure draft by Treasury for consultation has ultimately seen what was expected from within the SMSF industry – that is, the Federal Government wasn’t really interested in listening to many of the concerns about the proposed measures to better target superannuation concessions for individuals with balances above $3.0 million.
The concerns weren’t necessarily about the imposition of an additional tax rate for those with higher balances, but rather the mechanism to deliver this, which controversially taxed unrealised capital gains.
The new law, as outlined in the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023, reduces the tax concessions available to individuals with Total Superannuation Balances (TSBs) exceeding $3.0 million.
Introducing Div. 296 tax
These laws will be contained within Division 296 of the Income Tax Assessment Act (ITAA) 1997, and will be known as Div 296 tax.
Under the Div. 296 tax, from the 2025-26 income year onwards, the concessional tax rates on superannuation earnings are intended to be:
- up to 15% on balances below $3 million – taxed within the fund; and
- a further 15% on a percentage of earnings above $3 million – taxed to the member, with an ability to release via super for payment).
Similarly to the current Div. 293 tax, that applies an additional 15% tax on concessional contribution for high income earners, individuals have the option to pay their Division 296 tax liability by either releasing amounts from their superannuation interests or using amounts outside of the super system. They can choose to pay the tax liability from one or more superannuation interests, or they can use cash or a combination of both. Where they choose to release an amount from super, they can choose which superannuation interest that they wish to release the amount from.
Adjusted Total Super Balance
These measures make amendments to the definition of a total superannuation balance (TSB), removing the link to the transfer balance account. Furthermore, they introduce a new concept of TSB value.
A member’s adjusted TSB is calculated using a formula that takes into account the modified closing super balance after considering the effect of withdrawals and contributions.
The following table outlines how these adjustments are to apply:
|Withdrawals (add back)||Contributions (deduct)|
|Super benefit payments (lump sum & pensions)||Concessional contribution (85%)|
|Contribution splitting (paid to spouse)||Non-concessional contributions|
|Family law splitting payments (paid to spouse)||Contribution splitting (received from spouse)|
|Payments from a retirement phase income stream paid to member following the death of another member||Family law splitting payment (received from spouse)|
|Amounts withheld from an excess untaxed rollover amount||TSB value of super death benefit interest when individual becomes a retirement phase recipient|
|Amounts released under a valid requested release authority||Death or TPD insurance payment or contingent beneficiary payment (with exception of continuous disability payments)|
|Any amounts prescribed by the regulations||Any amounts allocated to the individual’s super plan that are captured within the meaning of CCs under s.291-25(3) – eg. reserve allocations?|
|FHSSS valid release authority (using formula)||A transfer from a foreign super fund|
|The increase in TSB value of a super interest as a result of a remediation payment or compensation for loss as a result of fraud or dishonesty|
|Any amounts prescribed by the regulations|
Whilst the crediting of a deceased member’s benefit to a dependant beneficiary i.e. spouse, will impact the surviving spouses future total superannuation balance, an exception exists to exclude deceased members from Div 296 tax if they die before the end of the financial year.
It should be noted that the amendment do not change the treatment of structured settlement contributions, and in some good news for SMSF members, an LRBA amount under s.307-231 is to be disregarded (i.e. post 1 July 2018 arrangements for related party loans and where a condition of release has been met).
To avoid double counting an amount, where a particular amount meets more than one category of contribution or withdrawal, that amount is only included once in the contribution or withdrawal total calculation.
As previously indicated, where the fund has negative super earnings during an income year, the unapplied transferable negative earnings can be carried forward and applied towards future years.
Payment Deadlines and Assessments
Payment of the Div 296 tax is generally due 84 days after the Commissioner gives the individual a notice of assessment for the tax, allowing individuals additional time to pay their tax liability. Given a number of SMSFs will have less predictable sources of income, this appears to be a concession by the Government, along with a lower Div 296 general interest rate charge that will apply.
If there are any amendments made to an individual’s assessment by the Commissioner, the individual is also given 84 days to pay any additional assessed Division 296 tax after being notified of the amendment.
Same rules for all?
The Government has been resolute in its message that a universal model would apply to members of all funds regarding the Div 296 tax. For SMSFs and many APRA funds, scope exists to provide ‘actual’ earnings for the purposes of applying a Div 296 tax, rather than via a notional earnings calculation. However, this is not the case for all super funds… but why should the majority be penalised for the minority that need to rely on this formula? There are plenty of instances within the laws that apply a different methodology for SMSFs vs APRA funds, including the recent NALE provisions currently before the Parliament..
The explanatory memorandum provides a range of examples that deal with the various parts to these new laws and over the coming weeks, both Tim and I will be exploring these in much more detail.
In summary, there’s plenty to digest from the draft Bills and explanatory memorandum released by Treasury. A two week consultation period shows the contempt by the current Government to want to take on any genuine feedback regarding these measures. The only avenue that remains appears to be within the Senate to (hopefully) make amendments to these measures, although I’m not really holding my breath.