Div 296 – the tax that won’t go away
With only one sitting day left before an election is called, the Division 296 tax is casting a dark shadow over the SMSF sector, a leading adviser has said.
Scott Montefiore, director of William Buck and chairman of The Advisers Association, has said the fact that the forward estimates still include the proposed earnings from the $3 million super tax indicates that the government is determined to see the legislation passed.
“The relevant thing is that between now and the election, this legislation could still be passed in the final few days of Parliament sitting,” he said.
“My concern is that the silence in the budget could indicate that the government has gained Senate support to push it through quietly before 27 March, and even with the opposition for the legislation from both the Coalition and industry, it may be rushed through the Senate before the election.”
Montefiore said many advisers may not be aware that this is still a possibility and if it is passed the SMSF sector will be greatly impacted, especially those in regional and rural Australia.
“If the government has gained Senate support to push this legislation through at the last minute it would be very disappointing, particularly for SMSF clients who own farms. Those types of members will be severely impacted by it in its current form.”
Peter Burgess, chief executive of the SMSF Association, said although this is technically possible, the next two days of sitting are typically reserved for measures that need to be passed for the budget.
“The important thing for the government is that it doesn’t take the proposal off the table because if it does it can’t count the revenue it had previously budgeted for. It doesn’t matter if the bill is passed, what matters is it is still government policy,” he said.
“This is now an election issue, and the government is clearly taking this to the election in its current form. There have been no suggestions of any change. When the election is called all bills before the Parliament will lapse and when a new government comes in, or the return of the current government, it will need to re-introduce the legislation into Parliament and start from the beginning.”
Treasurer Jim Chalmers said changes at “the very top of superannuation” were still part of the government’s tax reform agenda.
In an interview with Sky News on 20 March, Chalmers indicated there would be no changes to the government’s intention of doubling down on pushing the Division 296 tax through the Senate if it wins the upcoming election.
“If you think about the tax reforms that we have been either implementing or still pursuing in the Senate, the PRRT, multinational tax reform, the changes we’re seeking to make at the very top of superannuation, part of this is about doing that rebalancing,” Chalmers said.
Naz Randeria, managing director of Reliance Auditing Services, said with Labor’s superannuation reform measures stuck in the Senate, it highlights that the issue should be a key issue ahead of the federal election.
“While I appreciate that housing affordability and cost of living are likely top of mind for the majority of voters, changing the superannuation system also has an impact on these issues,” Randeria said.
“A strong super system is the foundation of a strong economy, and these proposed changes - particularly taxing unrealised capital gains - risk destabilising what is currently one of the best superannuation systems in the world.”
Randeria said if this legislation is passed, it could “set a precedent that would open the floodgates for future governments to extend unrealised capital gains tax measures” to other structures, such as companies, trusts, and even individual taxpayers.
“This creates a slippery slope that risks exacerbating tax inequality and undermining the integrity of our tax system,” she said.
“Mr Chalmers insists Labor already has an agenda and is not considering any other tax changes, however, the Labor Party also promised there wouldn’t be any changes to superannuation heading into the last election.”
Aaron Dunn, chief executive of Smarter SMSF, said the government had already started banking the money it would collect from the proposed Div 296 measures.
“We have seen as part of the commitment to the Greens for their support on that measure originally was the fact they would introduce superannuation on paid maternity leave. The reality is, that measure has already come into play, which means there is an expectation that they need the revenue from these Division 296 measures,” he said.
“They appear quite resolute that they will not only take this matter to the election, but if they are successful, they will argue that it is the mandate to go and introduce this measure. We will need to wait and see the makeup of the Lower House and the Senate [after the election] to determine whether they have any success on that.”
However, Dunn added that it appears at this point the government continues to pay lip service to the feedback from the industry.
“They will allow themselves to roll the dice at a future point in time because of the expectation that they've banked some of these with the policies that they've promised previously and, potentially, what they may be promising moving forward,” he said.
Nicholas Ali, head of SMSF technical services for Neo Super, said the budget was a “cash splash” focused on short-term sugar hits at the expense of substantive fiscal repair.
“The standout for me was structural deficits forecast for the next decade, with gross government debt surpassing $1 trillion for the first time next financial year, rising to an astonishing $1.2 trillion over the forward estimates,” Ali said.
“On the superannuation front, there was little in the way of announcements. Which is bad news, because it means the government will take its ham-fisted Division 296 tax to the next election, the date of which is likely to be announced later this week.”
He said this was “disappointing”, as Div 296 tax is the “personification of the law of unintended consequences, taxing a paper gain for an ever-increasing number of superannuants, while ignoring concerns - and solutions - put forward by industry”.
“This shows the government and Mandarin bureaucrats in Treasury have no interest in crafting a fair and equitable superannuation system,” he said.
“With two more sitting days of both houses of Parliament this week, it will be interesting to see if the government tries one last time to ram through its contentious tax on super savings. Given its previous failures in garnering the numbers in the Senate, one can only hope the government and Treasury are forced back to the drawing board to rethink their super boondoggle.”