Call Now (02) 9300 3000
9am-5pm, Mon-Fri

Latest News

Taxing unrealised gains in superannuation under Division 296

 

Australia’s superannuation system has seen a number of significant changes in recent years.

 

 

One of the most noteworthy is the proposed additional 15 per cent tax on earnings on superannuation balances above $3 million (Division 296 tax), due to commence on 1 July 2025.

The Division 296 tax was originally announced in the lead-up to, and as part of, the Government’s Federal Budget 2023–24. The details of the Division 296 tax are contained in the exposure draft Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 (draft Bill) and accompanying explanatory memorandum (draft EM) which was released for consultation on 3 October 2023.

The draft Bill and draft EM follow the release of an earlier consultation paper on 31 March 2023 and propose to insert new Division 296 into the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) to give effect to the announced measure.

Below, we examine how Division 296 will operate if implemented in its current form, some tips and traps that may catch out taxpayers and tax professionals, and some concerns with the design of the draft Bill.

How Division 296 tax is proposed to operate

Determining the amount of Division 296 tax that superannuants with a total superannuation balance (TSB) of more than $3 million may be liable to pay will require them to undertake several calculations.

Broadly, impacted superannuants will be required to use the relevant formulas in the draft Bill to:

  1. calculate the percentage of the earnings that are attributable to the proportion of the individual’s TSB above $3 million — this is based on the difference between the TSB at the end of the income year (year end) and the proposed $3 million threshold (Division 296 tax will apply only to earnings on balances above the proposed $3 million threshold);
  2. calculate the individual’s adjusted TSB by adding certain withdrawals, and subtracting certain contributions, for the year from the TSB at year end;
  3. calculate the amount of the basic superannuation earnings (BSE) used to determine the Division 296 tax liability — by subtracting the TSB at the end of the previous income year from the adjusted TSB calculated in Step 2 above;
  4. calculate the taxable superannuation earnings (TSE), which is the proportion of the BSE that will be subject to Division 296 tax, by multiplying the BSE (less any unapplied transferrable negative earnings), as calculated in Step 3, by the percentage calculated in Step 1 above; and
  5. calculate the amount of Division 296 tax — by multiplying the amount in Step 4 by the proposed tax rate of 15 per cent.

Tips and tricks

As is the case with most legislative provisions, in understanding the operation of Division 296 tax, regard must be had to important notes, numerous exceptions and common misunderstandings.

Some key points are discussed below.

Withdrawals and contributions

The purpose of adding back withdrawals, and subtracting contributions, from the TSB at year end in step 2 above is to ensure that the TSB used in the calculation of Division 296 tax reflects only the change in the value of the member’s balance from the start to the end of an income year.

In effect, this is a ‘balance sheet’ proxy for calculating the actual earnings of the superannuation account, instead of basing this on the member’s share of the ‘profit or loss’ made by the fund. Withdrawals are added back to prevent taxpayers from taking money out of their superannuation account(s) to avoid being liable for Division 296 tax.

Conversely, contributions are excluded from the calculation as they do not represent the fund’s earnings but rather an injection of capital. However, various exclusions to the withdrawals and contributions components are proposed in the draft Bill. These exclusions are broadly intended to ensure more equitable outcomes result when calculating the TSB at year end.

Negative earnings Individuals may find themselves in a position where their earnings on a TSB above $3 million are negative. This occurs when the BSE amount, as calculated in step 3 above, is less than nil. In these instances, the individual can ‘carry forward’ the losses to reduce the BSE in a later income year.

Shortcuts to calculating the Division 296 tax

Some common misconceptions are that Division 296 tax will, in effect, either tax all withdrawals at 15 per cent or tax all the earnings of the fund at 30 per cent. Neither of these statements are accurate.

When calculating the amount of Division 296 tax, it is important to correctly follow the steps outlined above in order. The correct amount of Division 296 tax can be accurately worked out only by following all the applicable steps and formulas.

Further, the steps ensure that only the proportion of the earnings on balances above the $3 million threshold is subject to Division 296 tax. There are no shortcuts or quick methods to work out the correct amount of tax payable.

Liability to pay

Akin to the current operation of Division 293 of the ITAA 1997 (where a member’s concessional contributions are subject to an additional 15 per cent tax where their income exceeds $260,000, it is proposed the Division 296 tax liability will be assessed to the superannuant and not the fund, and will be calculated by the Australian Taxation Office (ATO) based on available information.

Individuals subject to Division 296 tax will be able to choose to pay it using funds outside superannuation or request the funds be released from their superannuation account (via a request to the trustee of the fund). The individual will have 60 days to request a release of the amount from their fund (if they choose to) and 84 days to pay the tax.

Impact on franking credits

Proposed Division 296 will impose a new tax on the superannuant, and does not affect or modify the taxable income or income tax position of superannuation funds in any way. This includes the extent to which funds can claim a refund of excess franking credits.

Exceptions to Division 296 tax Several exceptions to Division 296 tax include:

  • individuals who are child recipients of a superannuation income stream at the end of an income year;
  • amounts relating to structured settlements in any income year; and
  • individuals who die before the last day of the income year. Interestingly, this means that an individual who dies on any day from 1 July to 29 June of an income year is not subject to Division 296 tax for that income year, irrespective of their fund balanc.. However, an individual who dies on 30 June of an income year is liable to Division 296 tax for that year if their TSB is above $3 million. Further modifications Some types of superannuation accounts may not readily lend themselves to the steps above. This is primarily due to the nature of, or legislative restrictions around, that type of superannuation account. For these reasons, special rules are proposed to work out the amount of Division 296 tax for:
  • individuals with defined benefit interests (including Commonwealth and Territory judges); and
  • superannuation contributions to constitutionally protected funds.

Valuation of superannuation assets on 30 June 2025

The TSB at the end of the previous income year directly affects the calculation of an individual’s BSE. Accordingly, particular care should be taken to ensure the value of superannuation assets on 30 June 2025 is accurate and not inflated to try to minimise the individual’s TSE for 2025–26.

Issues of concern

The draft Bill raises important issues that are of concern to many practitioners and their clients. Several aspects of the measure could be improved which would ensure the operation of proposed Division 296 is more equitable.

The Tax Institute’s submission to the Government considers in detail these concerns and potential solutions, the most significant of which are summarised below. Taxation of unrealised gains Division 296 proposes to tax the ‘earnings’ on superannuation balances that exceed $3 million, based on the movement in the member’s TSB during an income year.

Accordingly, Division 296 ‘earnings’ will include the unrealised gains of the fund. As a fundamental principle, taxing unrealised gains is inconsistent with the general approach to taxing capital gains in our current system.

Taxing unrealised gains is likely to place superannuation funds under financial stress, or their members in inequitable positions, if they are forced to sell large, illiquid assets to fund a Division 296 liability because the member has insufficient funds outside superannuation to pay the tax.

The measure should be redesigned to exclude the taxation of unrealised gains. However, if the measure proceeds as drafted, the proposed approach of taxing unrealised gains should not serve as a precedent in the design of future tax and superannuation policy.

A further key issue caused by taxing unrealised gains is the misalignment between the taxing point and the available cash flow. The Government should consider ways to minimise the impacts of this mismatch.

This could be achieved by, for example, including an optional deferral mechanism that would allow taxpayers to defer, with interest, the payment of their Division 296 tax liability until the relevant asset is realised and the funds become available.

Threshold not indexed

The $3 million threshold is not currently proposed to be indexed. This means that, over time, more people are likely to be subject to Division 296 tax. It is important that all thresholds across our tax and superannuation systems are indexed or regularly reviewed.

Indexing the $3 million threshold would ensure that the threshold reflects true market conditions and does not inappropriately expose more than 0.5 per cent of all Australians to Division 296 tax (the Government’s announcement on 28 February 2023 indicates that around 80,000 people will be affected by the measure in 2025– 26).

Utilising losses

The draft Bill proposes to allow superannuants with negative earnings to carry forward their losses to be applied against future gains. However, in some circumstances, a carried forward loss will not be permitted to be recognised or may result in inequitable outcomes.

These include, but are not limited to:

  • superannuation funds incurring large and unforeseen losses (for example, losses resulting from a severe recession or market crash) that exceed cumulative future gains; and
  • individuals who die after incurring a loss and are unable to recoup the loss or transfer it to their estate. As an alternative, the draft Bill could be revised to allow members to carry back losses and seek a refund of previously paid amounts of Division 296 tax.

Such an approach would resolve the inequitable scenarios noted above.

Making information available

Currently, it is proposed that the ATO will calculate an individual’s Division 296 liability and notify impacted taxpayers each year. Assuming the ATO will have the relevant information available to undertake these calculations, it is reasonable to ask whether, and if so, how, this information should also be made available to taxpayers and their advisers.

Without this information, a significant cost and time burden will be imposed on taxpayers who want to verify or estimate a Division 296 liability. Making the information available will also be of use to advisers who are engaged to provide taxpayers with accurate and timely investment and planning advice.

It may also be possible to utilise existing digital systems, such as MyGov or online services for tax agents through which the information can be provided.

Final comments

The consultation for the draft Bill and draft EM concluded on 18 October 2023. We await further progress of the measure and hope that the key issues and concerns raised by the professional associations and industry are addressed before the enabling bill is introduced into Parliament.

 

By Robyn Jacobson
April 05 2024
smsfadviser.com
 
 

Latest Articles

Most Popular Operating Systems 1999 – 2022

Check out the most Popular Operating Systems 1999 ...

Read More

Super sector in ASIC’s sights

The superannuation sector’s handling of retirement outcomes will be an area of focus for ASIC which has also...

Read More

How investing regularly can propel your returns

Even investing small amounts on a regular basis will compound returns over time.  . Among many other...

Read More

What the Reserve Bank’s rates stance means for property borrowers

The funding gap between variable and fixed rate loans is continuing to widen. . Reserve Bank of...

Read More

Investment and economic outlook, August 2024

Region-by-region economic outlook and latest forecasts for investment returns. . This month, we take a...

Read More

Capital losses can help reduce NALI

Capital losses can be used to reduce or eliminate NALI tax exposures in relation to a tainted capital gain...

Read More

Beware of terminal illness payout time frame

If an SMSF member is diagnosed with a terminal illness, it is best not to close out the fund before the...

Read More

ATO encourages trustees to use voluntary disclosure service

The ATO is encouraging SMSF trustees to use its voluntary disclosure service to inform it early if a...

Read More

Treasurer unveils design details for payday super

  The government has released further details about the design of its payday super policy including an...

Read More

Government releases details on luxury car tax changes

  The draft legislation aims to modernise the luxury car tax by tightening the definition of a...

Read More

Most Gold Medals in Summer Olympic Games (1896-2024)

Check out which country has won the most Gold Medals in Summer Olympic Games...

Read More

Capacity doubts now more common

The partner of a legal firm specialising in superannuation has revealed the concept of SMSF member mental...

Read More

Retirement Planning

Retiring on your own terms is not always easy to achieve, however it is evident that those who plan for retirement are more likely to do so. Results also show that obtaining professional help during the pre-retirement years further improves the probability of attaining your retirement objectives.

The earlier you start implementing a plan the better the outcomes.

During one’s working life there is always an income to make ends meet when raising children, paying off a mortgage, etc.

Retirement planning is about the lifestyle you will have after you stop work and receiving employment income.  Planning focuses on issues such as how much superannuation is enough, taking a super pension, claiming the Age Pension, making superannuation contributions while receiving a pension from a super fund, estate planning and looking after your family.

Planning properly is becoming even more important now we are expected to live longer.  This greater need means that professional help has never been more important.

At Wybenga Financial we will provide the time and expertise needed to help you implement the best pre-retirement plan possible.  Contact us today to discuss how we can work together on: (02) 9300 3000 or .

Building Wealth

Investing your hard earned savings can be a complex task.  There are many issues such as levels of risk, market timing, asset classes, and your own goals, objectives and preferences that need to be considered. It can often seem a daunting task. At Wybenga Financial we have the expertise to assist you in taking control of your finances and making sure you are generating the wealth you need both now and in the future.

The first step is to create a plan. At Wybenga Financial we take great care in getting to know our clients and their future goals and objectives. We combine our knowledge of your personal goals together with an analysis of your current situation, to create a detailed, personalised plan that will help you meet your objectives. This plan will become your road map which outlines how we are going to meet your goals, whilst aligning all investment decisions to your specific risk tolerance.

After we have created your personal plan, we move to implementation. This is where we action the immediate changes set out in your plan, and put in place reminders for anything that is to occur in the future. As your professional advisers, we can action many steps on your behalf making the implementation of changes as painless for our clients as possible. We aim to make the process smooth and seamless, providing a holistic service that can be executed with ease.

The final and most important phase of the relationship with Wybenga Financial is the ongoing management of your wealth. This ensures you are sticking to your plan and that your portfolio is aligned to your needs and attitude toward risk. An ongoing relationship ensures that we know when your circumstances change and that these can be recognised and reflected in changes to your investment approach.

While we are reviewing your portfolio from the perspective of your personal goals and situation, we also take into account the wider economic landscape and changes to legislation. We continually review and analyse our preferred investments in a structured and objective way. The benefit to our clients is that we are unemotional. This can be significantly beneficial over the long term.

At Wybenga Financial we can provide the time and expertise that will help you invest intelligently and prudently.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Personal Insurance

Life insurance isn’t just a cost, though it often feels like it.  You buy peace-of-mind that should a serious issue effect you then the consequences won’t unduly affect your family.  Insurance provides you with the ability to manage the financial and emotional impact of some of the more drastic events, whether personally or in your small business.

Insurance can’t replace a loved one but it can help reduce the financial burden by providing the capital to ensure your family has choices.

Many Australians are underinsured and the consequences can be very serious for families should there be a death or serious injury. A yes to any of the following questions means you may have a need for insurance coverage:

  1. Do you have a mortgage?
  2. Do you have school fees?
  3. Do you have any personal loans?
  4. Do you have any credit card debt?
  5. Do you have dependents?
  6. Would your financial position be affected if you were to suffer from an illness or injury?
  7. Do you want to have enough capital to look after your dependents if you were unable to care for them for an extended period of time or perhaps indefinitely?

We understand that it can be difficult determining the type and level of cover you might need, let alone choosing an insurer. We can assist by helping you determine your needs and recommend an insurer that is right for you.

At Wybenga Financial we know how to protect your wealth and will recommend solutions that best suit your needs. Contact us today to discuss how we can work together: (02) 9300 3000 or .

Superannuation

Superannuation is mandatory but taking an early and active interest in your retirement planning is critical to ensuring your benefits are maximised by the time you retire.  Many will have a superannuation scheme through employment but increasing numbers are starting their own Self-Managed Super Fund (SMSF).

For many, simply relying on employer contributions may not be enough to provide the lifestyle you desire at retirement. We can assist in building strategies to ensure your retirement goals are met and your required lifestyle is maintained throughout retirement.

It is always best to start saving and planning for your retirement as early as you can. 

At Wybenga Financial we know our job is to help you meet your retirement needs and we have the skills and experience to do this for you.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Self Managed Super Funds

Self-Managed Superannuation Funds (SMSFs) offer a good strategy option for many individuals, families and small business owners to build tax effective wealth and to protect assets over time. SMSFs are becoming popular for those who are ready to take control of their own super investments as they give you ultimate control and flexibility to manage your retirement benefits.

It must be noted though, that you will have increased responsibilities as a trustee of the fund. As a SMSF Trustee you need to keep up to date with all required regulations and keep up with the fast paced financial markets.

Wybenga Financial can work with you to understand your personal financial situation and decide whether a SMSF structure is appropriate for you. We will also make sure your assets are invested in the most effective way to maximise your retirement benefits.

Should you wish to consider establishing a SMSF then we can help with all aspects of the process from establishment to managing your compliance obligations.

Wybenga Financial would welcome the opportunity to discuss how we can help maximise your opportunities to grow your wealth through a Self Managed Superannuation Fund (SMSF).  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Estate Planning

Your estate is made up of everything you own. This includes your home, property, furniture, car, personal possessions, business, investments, superannuation and bank accounts.

Having an estate plan is extremely important.  Having a will is just the first step in your estate plan. It is critical to consider what outcomes you would like for your estate and to ensure a plan is in place to achieve those outcomes, both including and beyond the terms of your will.

Wybenga Financial would welcome the opportunity to discuss how we can help ensure your estate is organised to ensure your plans are implemented as you wish.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Finance

Loans and loan management are central to overall financial management.  Obtaining the the most appropriat loans for your needs is crucial and Wybenga Financial can help you with solutions that meet your short and long term needs.

At Wybenga Financial we work with experienced mortgage brokers that can assist you in obtaining the most appropriate loan for your needs and objectives. Whilst this is an external service, we work closely with the brokers to ensure the process is as easy and smooth as possible.

Contact us today to discuss how we can work together: (02) 9300 3000 or .

Property

We have partnerships with many respected property agents and research firms. This enables us to source suitable properties for individuals, couples and families looking to make an investment into property.

At Wybenga Financial we will assist you implement the most appropriate property investment plan possible.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Strategic Planning

Strategic planning is determining how an investor is going to meet their goals and objectives. It is about helping clients define their goals, gathering information and analysing data to make a plan, then implementing the plan and reviewing the results. It is also reviewing and updating goals and objectives as clients move through different phases of life.

At Wybenga Financial, this is the most critical service we provide. For more information please visit our Building Wealth through Strategic Planning page or contact us to discuss how we can work together: (02) 9300 3000 or .

Financial Videos

 

Secure File Transfer

Secure File Transfer is a facility that allows the safe and secure exchange of confidential files or documents between you and us.

Email is very convenient in our business world, there is no doubting that. However email messages and attachments can be intercepted by third parties, putting your privacy and identity at risk if used to send confidential files or documents. Secure File Transfer eliminates this risk.

Login to Secure File Transfer, or contact us if you require a username and password.

Tess Uncle

B.Sc, M.Com, CA, DipFP

Tess has over 22-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last seven-years, Tess has turned her attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Tess’s mission is to bring the ethics and integrity of her Chartered Accounting background to the area of wealth management.

As a woman in a male dominated field, Tess is active in promoting gender equality in the industry through various programs and mentoring opportunities.

Using her depth of knowledge and experience in tax and accounting Tess is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2001 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2004 – Graduated Masters of Commerce from the University of New South Wales
  • 2005 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2007 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

Schedule a Meeting with Tess


Adam Roberts

B.Bus, B.Sc, CA, DipFP

Adam has over 18-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last seven-years, Adam has turned his attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Adam’s mission is to bring the ethics and integrity of his Chartered Accounting background to the area of wealth management.

Combining traditional accounting and financial services has been a welcome move for Adam, allowing him to operate and advise in the financial sector that has been a long time personal passion.

Using his depth of knowledge and experience in tax and accounting Adam is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2005 – Graduated Bachelor of Science from the University of Western Sydney
  • 2005 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2007 – Graduated Bachelor of Business from the University of Western Sydney
  • 2010 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2010 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

Schedule a Meeting with Adam


Advisory Cadetships

What is an Advisory Cadetship?
An Advisory Cadetship enables you to commence your career whilst attaining the necessary university qualifications by studying part-time.

How does it work?
Generally, our cadets complete a relevant business or accounting degree at the University of New South Wales, the University of Technology Sydney, Macquarie University, or the University of Western Sydney.

The Firm provides 3-hours paid study leave per week to attend university. This can either be taken at the one time or broken between days depending on the individual’s requirements. In addition, the Firm provides paid study leave for both mid-semester and end-of-year exams.

We take the work life balance very seriously at Wybenga Financial and our cadets are encouraged to have a fulfilling life outside the office. A typical day will have you arriving at the office at around 8.30am with most days concluding at 5.30pm.

What are the benefits of an Advisory Cadetship with Wybenga Financial?
Our cadets benefit from the following:

  • Career path – on completion of their degree our cadets have significant practical experience which will assist them in advancing their careers
  • Work helps your studies – by working full-time our cadets are able to apply their practical knowledge in the university subjects
  • Camaraderie with other cadets – the Firm has a number of cadets at various stages of their career
  • Mentoring – cadets are paired with a senior staff member who oversees their progress and training both at work and with their studies
  • Communication and feedback – the Firm has an open door policy which enables all cadets to interact with all members of staff including Directors
  • Culture – the Firm promotes a friendly social culture with a number of functions throughout the year
  • Modern environment – including ‘socialising’ areas such as pool table and break out area
  • Training – ongoing support and technical training. We also provide internal and external training on a monthly basis
  • Remuneration – working full-time provides a market salary and independence with salaries being reviewed every 6-months

What happens when I complete my degree?
The completion of your degree is the first step of what we hope to be a long and successful career with us. The next step is the commencement of a Diploma of Financial Planning followed by completing the requirements to become a Certified Financial Planner (CFP).

There are always progression opportunities for the right cadets and we are dedicated to the long term development of our staff.

Who should apply?
Current Year 12 students or first/second year University Students who:

  • want to commence their career in financial advisory;
  • are due to commence or are currently completing a part-time business or commerce degree at university with an advisory major;
  • want to gain valuable hands-on experience while completing their qualifications;
  • are looking for a friendly working environment;
  • are team players who display initiative;
  • have a commitment to self-development;
  • possess excellent personal presentation and communication skills; and
  • are motivated and mature minded.

How do I apply for an Advisory Cadetship?
To apply for a Cadetship position at Wybenga Financial send us your details. Please also include in your covering letter why you wish to do a cadetship, include relevant qualities you possess, main interests / achievements, and any previous employment.

Interested candidates should initially forward a resume/covering letter of no more than 3-pages. Please provide full details of contact information (telephone or e-mail).

What if I have more questions?
For further information about our Cadetship program, please send your enquiry to .