\u201cHaving now had an opportunity to review the draft bills, it is our view that the revised legislation needs more work. We understand Treasury\u2019s desire for simplicity, and we accept simplicity often comes at the expense of unfair outcomes for a small minority, but right now Treasury hasn\u2019t got this balance right,\u201d Peter Burgess told SMSF Adviser.<\/p>\n
\u201cThere are too many scenarios, which are not unusual or unlikely, which could lead to unintended consequences and unfair outcomes. Adjustments are required to address this. It remains our view that there are other more cost-effective and less complex alternatives that should be considered by the government.\u201d<\/p>\n
In its submission to Treasury on the draft legislation, the association said the practical changes to the policy announced in October 2025 provide a more appropriate method of calculating superannuation earnings, however, there are several matters that require further consideration.<\/p>\n
It continued that the revised draft bill could be improved to strike the right balance between equity and fairness, and following a thorough reading several unintended consequences have been identified.<\/p>\n
\u201cThe imposition of Division 296 tax on individuals who may not be the beneficiaries of the superannuation benefit which gave rise to the Div 296 liability, and inappropriate amounts of Div 296 earnings being attributed to in-scope members, are some examples,\u201d the submission stated.<\/p>\n
\u201cAdjustments are required to ensure these, and other instances of unfair outcomes and unintended consequences are minimised.\u201d<\/p>\n
The submission also outlines a proposed change to the CGT adjustment provisions to simplify their application and, while the association acknowledged that the decision impact analysis is yet to be released, it said it is clear the changes announced in October 2025 will result in \u201csubstantial increases\u201d in implementation and ongoing costs for the superannuation industry that will ultimately be borne by all superannuation fund members, and not just those who are in scope.<\/p>\n
\u201cThese costs raise serious concerns about the ongoing sustainability of Div 296 considering the expected revenue gain to government,\u201d it stated.<\/p>\n
\u201cOur view remains that there are other more cost-effective and less complex alternatives that should be considered.\u201d<\/p>\n
The first concern raised in the SMSFA\u2019s submission relates to the total super balance reference amount, and specifically the impact of insurance proceeds.<\/p>\n
It noted that while individuals who have made a structured settlement contribution are excluded from Div 296, there is no similar concession for individuals who have received TPD insurance proceeds via superannuation, which usually represent large payments to provide funds for ongoing medical and care expenses.<\/p>\n
The SMSFA stated that either impacted individuals be excluded from Div 296 altogether, or that an adjustment be made to their TSB value to reflect the amount of insurance proceeds received.<\/p>\n
\u201cSimilar situations can also arise following the death of an insured member in the fund. That is, the proceeds of a life insurance policy owned by the trustee(s) of the fund, which are allocated to the deceased member\u2019s account, can often result in a large increase in the deceased member\u2019s balance,\u201d it continued.<\/p>\n
\u201cIf the death benefit is not subsequently paid to beneficiaries before the end of the income year, it could result in a Div 296 tax liability which would otherwise not have arisen had the life insurance proceeds not been received.\u201d<\/p>\n
It recommended that to prevent these unintended situations from arising, a deceased member\u2019s TSB should be adjusted by the amount of life insurance proceeds received.<\/p>\n
Furthermore, the association\u2019s submission raised concerns over the included TSB integrity measure, stating that there will be various situations in which the proposed use of the greater of the TSB opening and closing values will create potentially unintended consequences.<\/p>\n
\u201cFor example, members suffering losses outside of their control, such as occurred with Shield and First Guardian, would have their Div 296 tax liability calculated based on balances which have simply disappeared,\u201d it stated.<\/p>\n
\u201cIn addition, post 1 July 2027, an individual who has a temporary spike in their TSB at the \u2018wrong\u2019 time, such as toward the end of the financial year, will potentially be penalised for that twice \u2013 in the year in which the spike occurs and the following year.\u201d<\/p>\n
The submission provided an example of Sarah, whose TSB from the previous income year was $2.7 million but following a stock market rally just before the end of the income year, her TSB at the end of the income year increase to $3.5 million, the figure on which she would be assessed for Div 296.<\/p>\n
\u201cShortly after the commencement of the following income year there is a stock market correction which reduces her TSB below $3 million. By the end of the income year her TSB has reduced to $2.5 million,\u201d the example stated.<\/p>\n
\u201cSarah will still be subject to Div 296 tax because her TSB just before the start of the income year was $3.5 million. This is despite her TSB being less than the large superannuation balance threshold for the majority of the income year. The reduction in Sarah\u2019s TSB was not the result of any deliberate action taken by Sarah to avoid a Div 296 tax liability but rather was the result of investment market movements beyond her control.\u201d<\/p>\n
The submission stated that while the association understands Treasury\u2019s capture individuals who withdraw large amounts from superannuation in the same year in which their fund\u2019s Div 296 earnings are high such as when assets have been realised resulting in an artificial reduction in their taxable superannuation earnings, the proposed approach lacks equity and fairness.<\/p>\n
\u201cThe TSB measure is imperfect but is the best available method using established tests and values,\u201d it added.<\/p>\n
\u201cThe method adopted should represent as close as possible a taxpayer\u2019s true position and not create artificial elements which give rise to unintended consequences.\u201d<\/p>\n
Additionally, the SMSFA questioned the additional cost and complexity of this measure versus the likely small increase in tax revenue and recommended, in the interest of increased simplicity and to avoid unintended consequences, that a fixed TSB test time be used.<\/p>\n
\u201cAt the very least, members who have not satisfied a full condition of release should not have their TSB determined as the greater of their TSB opening and closing values,\u201d it stated.<\/p>\n
\u201cWe note the amendments will provide a regulation-making power to specify a value or a method for determining a value of a superannuation interest. Should the Government proceed with this approach, the ATO Commissioner should be given the discretion to adjust a member\u2019s TSB calculation if the proposed approach would otherwise result in an outcome incongruent with the policy intent.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cHaving now had an opportunity to review the draft bills, it is our view that the revised legislation…\n","protected":false},"author":2,"featured_media":240334,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[138,246,20513,111,139,69,244,245,314],"class_list":{"0":"post-240333","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-legislation","11":"tag-new-zealand","12":"tag-newzealand","13":"tag-nz","14":"tag-personal-finance","15":"tag-personalfinance","16":"tag-superannuation"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/240333","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=240333"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/240333\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/240334"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=240333"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=240333"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=240333"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}