The federal government released the draft regulations for the Division 296 tax last week providing more detail as to how the new measure will be operate.
The publication of the Building a Stronger and Fairer Super System Act 2026 – Draft Regulations includes a consultation period over which industry stakeholders are encouraged to provide feedback to this element of the measure. Responses are to be submitted by 7 April, which gives an effective review period of 13 working days.
However the regulations have already attracted criticism from some quarters of the SMSF sector.
While welcoming the release of the draft regulations the SMSF Association has expressed its displeasure with their late arrival and the short timeframe to review them, and noted there were still concerns about the application of the new impost on deceased members.
“While we welcome consultation on the draft regulations, it is disappointing that this level of detail wasn’t available earlier in the legislative process, especially given the relatively short consultation period which runs into Easter,” SMSF Association chief executive Peter Burgess said.
“A key concern is post-death attribution of earnings. Applying tax to earnings after death is a significant outcome that wasn’t clearly evident from the legislation or explanatory materials and raises important questions about how Division 296 will operate in practice, particularly where the payment of death benefits can span multiple years due to matters outside of a trustee’s control.”
SMSF Alliance principal David Busoli stated the regulations shifted how the government would view earnings for a deceased member in the years after their death.
The pervading understanding within the industry was if a member’s TSB at 1 July of a particular income year was above the $3 million Division 296 threshold, and the member died during that year (the initial being 2027/28), the individual’s superannuation benefits would only be captured for that financial year. Further this interpretation suggested any death benefits paid in the subsequent income year would not be subject to the new impost.
“We believed that if the death benefit payment was not finalised by 30 June 2028, resulting in asset sales being delayed to the 2029 financial year, the earnings attributable to those asset sales would not be subject to Div 296 tax. This is not the case,” Busoli explained.
“The [draft] regulations provide for the earnings, including asset sales, that occur in the 2029 year until the death benefit is paid, to be included in the 2028 Division 296 tax return. This effectively negates the ‘strategy’ of dying late in the financial year.”
Burgess pointed out, apart from the post-death attribution of earnings, the association also saw the potential for different treatments of negative earnings for Division 296 purposes depending on the type of superannuation interest held by an individual.
“There also appear to be situations, such as SMSFs with unallocated reserves, where members could pay tax on earnings from amounts they may not ultimately receive. This raises questions about how the rules align with member entitlements,” he added.