A senior financial services stakeholder has reminded practitioners the application of the total super balance rules for Division 296 tax purposes differ from the accepted personal transfer balance account assessment with regard to death benefit pensions.
“Where we have a death benefit pension, particularly where [an income stream] has reverted automatically, even though it might be 12 months before it gets assessed to someone’s transfer balance account, it immediately goes into their total super balance,” BT head of literacy and advocacy Bryan Ashenden told attendees of a technical webinar recently.
“So it will be in there as part of the valuation [of a person’s total super balance] at the end of the financial year [for Division 296 tax purposes].
“So just again you need to remember about the potential issues and nuances that come out of that.”
To illustrate this point, Ashenden used the example of Mary, who has a total super balance of $2.7 million at 30 June 2028 that grows to $2.9 million at 30 June 2029. Further, during the 2029 income year she received a death benefit pension valued at $2 million.
In assessing the applicability of the Division 296 tax to Mary’s position, Ashenden looked at several aspects of her situation. The first was that her total super balance at 30 June 2028 of $2.7 million was not relevant as it is lower than the value of her benefits at 30 June 2029 of $2.9 million.
Ashenden acknowledged at face value many practitioners might believe Mary will not be in scope for the Division 296 tax as her total super balance at 30 June 2029 was $2.9 million, which is below the $3 million threshold.
However, he confirmed the death benefit income stream of $2 million she received during the 12-month period in question had to be included in her total super balance for the Division 296 tax assessment. This will take her total super balance to $4.9 million at 30 June 2029 and will mean she is in scope for the new impost.
Ashenden took the opportunity to warn practitioners not to believe the death benefit pension had to be subtracted from her total super balance at the end of the 2029 financial year as in the amended Division 296 tax policy this is no longer the case.
“That is the way [the assessment] operated under the old or previous version of this legislation, but does not come into account for this one,” he indicated.