A superannuation specialist has predicted the most significant impact the Division 296 tax for SMSFs will not occur immediately but will be witnessed in future years when sizable capital gains on assets held are realised.
“Where the real sting in the tail for this is going to be is not year to year but [for] SMSFs with big assets, especially property or [shares in] an IPO (initial public offer) that has gone nuts or crypto or something like that, when you sell the asset at large gain,” BT Financial Group technical consultant Matt Manning told attendees of a recent webinar.
“That’s when we are going to be having the big hit for Division 296,” he added.
Further he pointed out this is an inevitable outcome given the other parameters currently contained in the retirement savings framework. These include the current limits on the amount of contributions an individual can make to their superannuation fund.
“There are going to be some people [who have benefited from the period] where we had no contributions caps, or certainly no non-concessional cap, but how else is a client going to get more than $3 million indexed in super without some large capital gains?” Manning asked.
“[By using] the small business contributions [and] the 15 year exemption? That [would only be] for a small percentage of the population and it gets you about halfway there.
“A lifetime of concessional contributions and maybe some non-concessional [contributions] at the end still probably doesn’t get you there.
“We’re really going to be talking about people who have [experienced] significant [asset] growth, and that’s great, but when they sell those assets then the sting in the tail is going to be the Division 296 consequences,” he explained.
“So yes for some Division 296 is going to be largely, in the scheme of things, barely consequential until you get a situation where your assets grow and you sell and then it’s going to be in that year you sell your property that’s appreciated a lot in value in the SMSF when you’re going to have a massive thing,” he concluded.