The long debated Division 296 legislation may has reached its final draft stage as Treasurer Jim Chalmers recently announced changes post heavy feedback and objection to its original format announced in 2023.
The most notable changes to the legislation were the removal of unrealized gains being taxed under the scheme, which the Treasurer was forced to backtrack on given the very public outrage. In replacement of that section of the legislation the Treasurer did add in a new threshold for balances above $10M, of which earnings will now be taxed at 40%.
This means the tax will now target:
- Balances between $3M & $10M on which earnings will be taxed at 30%, and;
- Balances above $10M, which earnings will be taxed at 40%.
Another positive change that has been implemented is that these thresholds will now be indexed in line with CPI in amounts of $150K. The legislation previously had no provision for indexation of these thresholds which had many worried that the $3M threshold now, would at some point in the not-too-distant future be only a moderate balance that would incur a penalty tax of sorts.
What do these changes mean for taxpayers?
To start with fewer individuals are going to subject to the tax in the future because of the indexation factor and secondly the removal of the unrealized gains from Div 296 Tax seems to present a far more measured approach. Taxpayers, especially those with a large proportion of high growth assets in their funds, should be subject to far less cashflow pressures from having to pay tax on unrealized gains, which should lead to better stability, especially in the SMSF sector.
We anticipate now that there will be less urgency for superannuation members wanting to restructure their assets to avoid the tax, as the alternative may provide little to no benefit as opposed to the current superannuation environment.
For the 8,000 or so people in Australia that do have more than $10M in their Superannuation account, they are likely to be discussing options with their advisers now, as the pending 40% tax rate will drive the question of whether Superannuation is the best long-term structure for them.
Overall we see the changes as positive for the majority of Superannuation members, but we still be encouraging members to be speaking to their advisers now to work through how Division 296 will impact them and if they should be considering any alternatives.
[free_strategy_session]
Book a free financial strategy session
A 90-minute strategy session gives you a clear plan.
- Get a better understanding of your needs
- We generate a detailed report from your strategy session
- Understand your priorities and next steps
[/free_strategy_session]
