With the recent election announcement, the controversial Division 296 legislation has officially been scrapped – at least for now. Despite the fact that this bill would supposedly affect less than 1% of Australians, the proposed changes have sparked major backlash.
Because the Bill didn’t pass before the election was called, it can’t progress any further until after Australians head to the polls. And depending on the outcome, it may never return in its current form.
A quick refresher – what is Division 296?
Division 296 proposed an additional 15% tax on earnings for super balances over $3 million. This is on top of the standard 15% super tax, bringing the total to 30% for balances above the threshold.
Why is this tax a big deal? It would apply to unrealised gains – that is, increases in asset values that haven’t actually been sold. Traditionally, tax is only applied to realised gains, so this marks a significant shift in how superannuation is taxed.
What happens next?
If the Liberal party wins our upcoming election, they’ve made it clear they will not reintroduce Division 296.
However, if the Albanese Government is re-elected, they’ve signalled they will continue to pursue it. That said, the process will need to start from scratch – and there’s no guarantee it will get as far next time.
Why is it controversial?
Critics have labelled the Bill rushed, flawed and controversial – largely because of how it treats unrealised gains.
Taxing unrealised gains is seen by many as a dangerous precedent.
Rather than calculating tax based on actual income or realised gains, Division 296 would assess the value of an investment and tax the increase in that value – even if the asset hasn’t been sold and no cash has been received.
This is especially problematic for self-managed super fund (SMSF) members, who often hold assets like property. If the value of a property spikes but isn’t sold, the member could still be hit with a tax bill – even though they haven’t pocketed any income from the gain. You also wouldn’t get a tax refund if the asset then decreased in value.
What would this mean for SMSF members?
Those with balances near the $3 million mark, or who hold rapidly appreciating assets, could have found themselves subject to Division 296.
To complicate things further, it would be the member’s personal responsibility to pay the Division 296 tax, and, many may not have sufficient cashflow outside of super to do so. While members can choose to release money from their super fund to cover it, this is not always ideal.
This could have forced some to sell large, illiquid assets (like property) just to cover their tax liability – something that could seriously undermine long-term investment strategies.
Stalled, but not forgotten.
If Division 296 is revived post-election, expect plenty more debate to follow. For now, the legislation is on pause – but not necessarily gone for good.
If you have any questions, or need expert advice on your SMSF, don’t hesitate to get in touch with our team today.
Drawing on over 30 years of experience, Sav takes a holistic approach with his clients, allowing him to consider many aspects of clients' finances including their family, practice/business arrangements, investment strategies and retirement planning (including superannuation).