While stakeholders in the sector have pretty much universally rejected the measure and a large part of the financial services industry has done likewise, if it must be introduced, we will soon have a better idea of how that might happen.
We all know the Labor Party won a clear majority to govern in the House of Representatives, but this won’t play any significant role in what comes next. It is how the Senate will be made up that will be the determining factor.
When we left off, the bill to introduce the new tax was at a standstill with the government unwilling to change the document in its original form in order to get it through the upper house. Basically it ignored requests from key independent members of parliament to revise the fact there was no indexation mechanism in the bill and to amend the calculation method for the impost so as to not tax unrealised capital gains.
But after 3 May, the government faces a new proposition. Some early analysis of the election as it pertains to the make-up of the Senate is suggesting the Greens may win enough seats to ensure Labor will only need their support and its own members to pass legislation over the next three years.
This is not encouraging news for the SMSF sector as it sets up the likelihood of the bill being passed with even worse conditions than originally planned. For example, the Greens position was for the $3 million threshold to be lowered to $2 million and for limited recourse borrowing arrangements to be scrapped, an unrelated demand but one used to clip the SMSF sector at any opportunity.
Needless to say, if the trigger threshold is reduced by $1 million, the net for the tax is going to be cast far beyond the 80,000 SMSFs first predicted and even further if indexation continues to be omitted from the bill.
So we’ve gone from a position of mild optimism the Division 296 tax may have been dead in the water to a situation where we could experience the worst of all worlds.
Further, as I noted at SMSF Trustee Empowerment Day last year, my sources in the industry indicated then shadow treasurer Angus Taylor would not commit to scrapping the tax next time the coalition was in power as doing so would create a budget hole that would require addressing. This is despite fellow Liberal MP Luke Howarth’s commitment to repeal the legislation. So it would be dangerous to count on the opposition as an eventual saviour of the situation.
It means the coming days will be very interesting for the SMSF community as to how it will potentially be taxed in the future.
All of this is still up in the air of course, but one thing that seems logical is the measure’s implementation will have to be pushed back from the government’s intended date of 1 July 2025 to allow trustees to properly prepare for the change to superannuation taxation policy.
No doubt the sector’s focus will again be laser-like on how this all will conclude.
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