Article by Roger Thomson
The proposed 15% extra tax for super members above $3m was announced February 2023 and legislated October 2023, with an intended start date July 2025. Currently held up in Senate Reviews by The Greens waiting for deals to be made.
How does it work?
Not an extra tax on income but extra tax on the increase in member balances. Assessments will be issued to individual members each year, like Division 293 on contributions. Members pay the tax themselves or can elect for their fund to pay.
This is not a flat 15% tax but proportional to member balances over $3m - rate is effectively 1.5% at $3.3m, 7.5% at $6m and 14.5% at $100m.
This tax only applies to super balances so the same assets can be held outside super with no Division 296 tax impacts.
What should you consider?
Every family circumstance is different.
Modelling reveals the generous tax rates in super (between 0-15% rate with pensions) generally outweigh the extra Division 296 tax paid over time, upon sale of the asset. Compare this to your marginal tax rates outside super.
Will the asset ever be sold? If farmland is likely to stay in the family via Will or succession planning, it may be prudent to transfer this land from your SMSF to avoid this future tax.
Cashflow impacts for older members with high balances? Low yield property can pressure minimum pensions – rising to 6%, 7% & 9% quickly after 75.
Will farmland values continue their unstoppable rise? Will values plateau for 10 years as has happened in the past? Should future farmland be excluded from SMSFs for better flexibility and use of equity?
Important to also consider Death Benefits tax impacts on your fund as part of any decision, with potential tax rates of 15-17% for beneficiaries.
The horse called self-interest
In recent weeks there has been significant push-back from Public Servants, Judges and Politicians on Division 296 and its impacts on Defined Benefits super funds. This new group of agitators beyond tax, superannuation and ag industry experts may cause some review of the final legislation.
Future of super
Super is still a very good place for long-term savings, it is concessionally taxed and has well-established systems in place, but contribution limits reduce massive future balances for those starting out. Legislative risk will always be a feature of super in Australia.
Don’t write off super just yet based on these changes but carefully manage your assets.
Byfields has developed a sophisticated modelling tool which we can apply to your personal circumstances to make the best long term tax decision for your SMSF.
To discuss further please contact your Byfields accountant.