A specialist superannuation lawyer has confirmed the withdrawal of monies from an SMSF can allow members to avoid being caught by the proposed Division 296 tax.
The affirmation was in response to practitioner misconception this would not be the case due to the nature of the defined calculation for the tax liability whereby any withdrawals have to be added back to determine the earnings relating to a person’s total super balance (TSB) above the $3 million threshold.
“You do not have to pay Division 296 tax if your TSB is equal to or less than $3 million at the end of the financial year. There is a special provision that says that,” DBA Lawyers special counsel Bryce Figot told attendees at the SMSF Association Technical Summit 2024 held in Sydney last week.
“This is the case regardless of any add-back rules.”
To this end, Figot pointed out the one element of the formula to be used to determine an individual’s liability under the Division 296 tax rules involves calculating the portion of earnings to be allocated against the TSB of the member above $3 million.
“[The equation] is along this line – 15 per cent multiplied by TSB at the end of the financial year less $3 million divided by the TSB at the end of the financial year, multiplied by adjusted growth. Now adjusted growth is where the add-backs come into it,” he noted.
“But as you can see, regardless of add-backs, if your TSB at the end of the year is $3 million, the numerator [in the equation will be zero]. If the numerator is zero, then anything [multiplied by] zero is zero.”
According to Figot, it means a strategy to make a drawdown from an SMSF to allow a member’s TSB to fall below $3 million can in effect be used to prevent the individual in question from being captured by the Division 296 tax provisions.
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