A key industry stakeholder has suggested the 2026 federal budget has given SMSF trustees greater clarity as to how they manage any potential Division 296 tax liability.
“This budget perversely supports the remain-in-super alternative, not by what has changed in super, but rather by what hasn’t. Considerations surrounding the withdrawal from superannuation to invest individually, or via a discretionary trust, as a response to the Division 296 tax, now need rethinking,” SMSF Alliance principal David Busoli noted.
He identified two budget items that have led to this result.
The first being the 50 per cent capital gains tax (CGT) discount which has been replaced by cost base indexation for assets held more than 12 months alongside a 30 per cent minimum tax on real net capital gains and the fact this measure does not apply to complying super funds.
The second being the introduction of a minimum 30 per cent tax on the taxable income of discretionary trusts at the trustee level. This policy will also see a non-refundable tax credit made available for non-corporate beneficiaries.
“Previously, Division 296 modelling has generally favoured, subject to transaction costs and premature CGT, an investment of some part of an in-scope member’s accumulation account into an individual investment structure, including a discretionary trust arrangement,” he explained.
“With the 50 per cent CGT discount gone, a top-bracket investor’s effective CGT rate moves from 23.5 per cent to something over 30 per cent on real gains,” he added.
“More importantly, the move to hold investments in a lower-marginal-rate spouse’s name or in the name of low tax beneficiaries via a discretionary trust moves such strategies into the 30 per cent minimum tax bracket from 1 July 2028.
“Beneficiaries will also not be eligible to receive any tax refund on that 30 per cent like they do with franking credits. This means that bucket companies, long the standard tail of these structures, get no credit at all, so are double taxed.
“The result is that the individual, including discretionary trust, investment alternative to superannuation has become less attractive as a solution to Division 296.”
According to Busoli the budget should serve as a reminder for trustees to ask themselves what their strategy to manage any possible Division 296 tax liability will have for the rest of their lives. This is because once monies are exited from the superannuation environment in nearly every case the action is irreversible.