Category: Customer Success

August 2025 Ask Graeme Webinar

In October 2023 the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill were released for public consultation and introduced into the Parliament in November 2023.

On 7 December 2023 the Senate referred the bills to the Senate Economics Legislation Committee which handed down its report on 10 May 2024. The committee’s recommendation was that the bills be passed as they stood. The bills were passed by the House of Representatives in October 2024 and introduced in the Senate on 21 October 2024 but lapsed on 21 July 2025 at the end of the previous parliament. The matter is expected to be reintroduced into the parliament during the Spring 2025 sittings. The reintroduced bills may differ from the previous bills that lapsed at the end of the previous parliament.

In broad terms, the originally proposed Div 296 tax is:

  • intended to apply from the 2025/26 financial year if a member’s adjusted total superannuation balance is greater than $3 million (unindexed).
  • calculated on the proportion of the member’s adjusted total superannuation balance above $3 million at the end of each financial year,
  • levied as a 15 per cent tax on the proportion of the growth in an individual’s “superannuation earnings”, including unrealised capital gains. The earnings is calculated as the increase in the member’s total superannuation balance (TSB) at the commencement and adjusted TSB at the end of the relevant year of income commencing after 1 July 2025,
  • not applied to reductions in the member’s TSB at the end of the financial year. Negative earnings above the $3 million cap are quarantined and used to offset future earnings under the calculation of a person’s superannuation earnings for a future year of income. The offset of losses does not result in a refund of any previous tax paid.
  • proposed to be levied directly on the member and imposed separately to personal income tax and superannuation fund tax. The member may elect to pay the tax personally or have it paid from the balance in their superannuation fund or funds of which they belong, similar to Div 293 tax.

An individual’s TSB as at the end of the relevant financial year will be used to determine whether a liability for the Div 296 tax arises. That liability occurs only if the individual’s TSB is greater than $3 million and there are taxable superannuation earnings based on their adjusted TSB. To set the record straight and clarify any misconceptions, it is a misnomer to say that the combined tax payable on the fund’s investment income in accumulation phase (15%) and the Div 296 tax (also 15%) will be 30% in aggregate.

Question

How will Div 296 work for SMSF asset valuations?

Certain exemptions from the Division 296 tax apply to:

  • minors in receipt of a superannuation income stream such as a death benefit pension following the death of a parent or other person of which the child is a dependant for superannuation purposes,
  • anyone where a structured settlement payment (personal injury payment) has been made to superannuation. This applies regardless of whether the structured settlement amount was made in the relevant year of determining whether the Div 296 tax applies or in an earlier year,
  • a person who died during the year in which the Div 296 is being determined. The only exception is where the deceased died on 30 June in the financial year.

There are three stages involved in determining whether Div 296 tax is to be levied on an individual. These are:

  1. calculation of ‘superannuation earnings’ based on the individual’s adjusted TSB at the end of the financial year,
  2. calculating the proportion of earnings attributable to balances above $3 million, and
  3. calculating the tax liability.

Stage 1


Calculate the ‘superannuation earnings’

The member’s ‘superannuation earnings’ for Div 296 purposes is calculated as the increase in their TSB on 30 June in the previous financial year which is adjusted for contributions and withdrawals during the relevant year of income. For the first year in which the legislation applies the adjusted TSB as at 30 June 2026 is the TSB at 30 June 2025 less ‘contributions’ plus ‘withdrawals’.

The adjusted TSB is reduced by any concessional contributions, less the 15% tax payable, and non-concessional contributions made to the fund. Withdrawals, such as income stream payments or lump sums paid to the member are added back to the calculation. The calculation of superannuation earnings is:

Superannuation Earnings = Current year adjusted TSB – previous year TSB

If the previous year TSB is less than $3 million, then an amount of $3 million, referred to as the large balance superannuation threshold, is substituted as Div 296 tax is designed only to apply to adjusted TSBs that lie above that amount.

The adjusted TSB in the superannuation earnings formula is calculated as:

Adjusted TSB = TSB for the current financial year + lump sum and pension withdrawals for the year – any contributions for the year.

The information for calculating the adjusted TSB is sourced from the fund’s annual returns. However, some information such as an individual’s pension payment details and whether personal contributions have been claimed as tax deductions may need to be included.

The adjusted TSB includes amounts withdrawn from the fund by the member during the year which are added back to the TSB as at the end of the financial year and any contributions for the year are deducted from the TSB.

Adjusted Total Superannuation Balance – pension withdrawals for the year

The total of the following amounts paid from the individual’s superannuation interests (accumulation and retirement phase balances) during the year are added back to the TSB at the end of the year of income:

• a superannuation benefit payment, such as a lump sum,

• superannuation benefits transferred via spousal contribution splitting,

• superannuation benefits transferred to another person via a family payment split,

• amounts withheld from an excess untaxed rollover amount,

• amounts released under a valid requested release authority (E.g. Division 293, excess NCC or first home super saver amount released),

• any amounts described by regulations. It should be noted that there are no draft regulations currently available.

Adjusted Total Superannuation Balance – contributions for the year

Contributions for the year equal the total of the following amounts received into the individual’s superannuation fund(s) during the year:

• contributions made to the individual’s superannuation fund. In the case of concessional contributions 85% of the amount is deducted from the TSB and for non-concessional contributions the whole of the amount is deducted,

• contributions spitting superannuation benefit payments made to a spouse’s superannuation balance,

• family law superannuation payments made due to a payment split and added to the recipient’s account,

• the TSB value of a superannuation death benefit interest when the individual becomes a retirement phase recipient of the death benefit,

• a death or total and permanent disability insurance payment or contingent beneficiary payment (with the exception of continuous disability payments such as a disability pension),

• any amounts allocated to the individual’s superannuation plan that are captured within the meaning of concessional contributions under s291-25(3) such as certain transfers from reserves,

• a transfer from a foreign superannuation fund,

• the increase in TSB value of a superannuation interest as a result of a remuneration payment or compensation for loss as a result of fraud or dishonesty,

• any amounts prescribed by regulations.

Stage 2


Calculate the proportion of the earnings attributable to the balance above $3 million

This part of the calculation is to ensure the proportion of the increase in the TSB that lies above the $3 million cap is brought to tax. It is worked out by determining the percentage of the TSB at the end of the relevant year that is above the $3 million cap threshold as:

(Individual^’ s TSB at the end of the year-large superannuation balance threshold)/(Invididual^’ s TSB at the end of the year) ×100

Note: The proportion is calculated using TSB (less LRBA amounts) and not the adjusted TSB which is used to calculate the superannuation earnings.
(Proposed s 296-35(2))

Stage 3


Calculate Tax Liability

The ‘tax liability’ is then determined by multiplying both ‘earnings’ and ‘proportion of earnings’ as calculated above in Steps 1 and 2 by the 15% tax rate:
Div 296 Liability=15% ×Taxable Superannuation Earnings (Earnings ×Proportion of Earnings)

(Proposed s 296-35(1))

Examples

The case studies of Stephen and Toni that follow illustrate the calculation of Div 296 tax and any adjustments to the individual’s TSB that are required.

EXAMPLE

Stephen

  • Stephen is 65 and has a total superannuation balance of $4 million as at 30 June 2025, 
  • On 30 June 2026 Steven’s balance is $4.5 million,
  • He has made no withdrawals and no contribution to superannuation

Steven’s calculated earnings are:

Steven’s earnings equals $4.5 million – $4 million = $500,000 as he has not made any withdrawals or contributions.
The proportion of Steven’s earnings above $3 million is:


Where:

Tax liability for the 2025-26 year is:

Where:

Effective tax rate of Div 296 tax on the fund’s total assets:
EXAMPLE

Toni
Toni’s case study provides 3 possible scenarios which illustrate the impact of Div 296 tax where increasing amounts are withdrawn from the fund:
Scenario
Toni withdraws an income stream in retirement phase and makes concessional contributions.
Toni’s circumstances

  • Toni is age 66 and has a TSB on 30 June 2025 of $5 million,
  • On 30 June 2026 Toni’s TSB is $5.3 million,
  • During the 2025-26 financial year she withdraws a pension of $200,000 during the year,
  • Made a concessional contribution of $20,000 during the year, $17,000 net of tax,
  • For purposes of Scenario 2 Toni withdraws a lump sum of $500,000,
  • For purposes of Scenario 3 Toni withdraws a lump sum of $1 million

Scenario 1
Toni’s calculated earnings in scenario 1 are:

Toni’s earnings equals $5.3 million – $5 million + $200,000 – $17,000 = $483,000 in view of  withdrawals and contributions that have been made.
The proportion of Toni’s earnings above $3 million is:

Where:

Tax liability for the 2025-26 year is:

Where:

Effective tax rate of Div 296 tax on the fund’s total assets on 30 June 2026:

Summary

TSB 30 June 2025

TSB 30 June 2026

Pension

Lump sum

Concessional Contribution after 15% tax

Adjusted TSB as at 30 June 2026

$5,000,000

$5,300,000

$200,000

0

$17,000

$5,483,000

Proportion of superannuation earnings > $3 million

Div 296 tax liability

 

Effective tax rate on the fund’s total assets on 30 June 2026

43%

$31,441

0.593%

Main Issues with Division 296

The operation of Div 296 and the manner in which the tax liability is calculated has a number of issues which need to be considered.  These will determine whether superannuation continues to be as attractive as in the past.  The two main concerns with Div 296 are:

  • the taxation of the ‘growth’ element in a member’s TSB over the year of income including the imposition of tax on unrealised capital gains on a year-by-year basis, and
  • the lack of indexation of the ‘large superannuation threshold’ of $3 million.

In addition to these main issues there is also:

  • valuation of fund assets on a market value basis,
  • discrimination in the flexibility to withdraw benefits for those who meet or don’t meet a condition of release as part of the introduction of Div 296 tax,
  • payment of the tax from the fund, especially SMSFs, which may have a significant proportion of the fund in illiquid assets,
  • no notional CGT discount in calculating the adjusted TSB on assets that have been owned by the fund for greater than 12 months,
  • No opportunity to equalise balances between spouses prior to the introduction of Div 296 tax,
  • at the time the legislation was released in October 2023 it was estimated that 80,000 members would be impacted on an ongoing basis by the introduction of Div 296.  If the proposed legislation commences on 1 July 2025 the number of members impacted by Div 296 tax is likely to increase beyond that estimate,
  • there is no adjustment to losses carried forward if the member’s adjusted TSB falls below the $3 million threshold, and.
  • effective double tax on taxable capital gains and unrealised capital gains attributable to the adjusted TSB above the member’s $3 million cap.

When will the $3 million cap become an issue?
It is difficult to predict when the impact of Div 296 tax will become an issue as it depends on the  particular circumstances of the member involved.  Those circumstances, not in any particular order, depend on:

  • The member’s current TSB and the adjusted TSB,
  • The income and capital growth of fund assets,
  • The amount of contributions made over time in respect of the member by their employer, the member and others,
  • The rate of increase in the indexation of the contribution caps and the total superannuation balance cap.
  • The amount withdrawn from the fund during the year as lump sums and pensions
  • The member’s age,
  • The age of the member’s spouse,
  • Whether the member satisfies a condition of release,

Before alternative arrangements to superannuation are considered it is probably worthwhile to  consider strategies which take advantage of the current superannuation rules to reduce or possibly eliminate the impact of Div 296.
Who will be impacted immediately by Div 296?
Members under age 60?
The main group of fund member’s immediately impacted by Div 296 are those:

  • those under age 60,
  • not meeting a condition of release with a ‘nil’ cashing restriction, and
  • have a TSB of more than the $3 million cap or will approach the cap amount within a relatively short period. 

This group has little flexibility to reduce their TSB below the $3 million threshold and as a general proposition are locked into superannuation by the preservation rules until at least age 60.  Access to superannuation prior to that age is available if certain limited conditions of release are satisfied, such as permanent disability.
It is possible for those under age 60 to make micro changes to their superannuation balances.  However, these changes, such as splitting concessional contributions to their spouse, have a limited impact on the person’s TSB.
Member aged 60 or older?
There is a potential escape hatch for anyone 60 or older If Div 296 happens to become law and the individual wishes to reduce their liability.  The immediate impact of Div 296 is most likely to be on anyone who is at least age 60, has superannuation earnings for the 2025-26 financial year and a TSB on 30 June 2026 of greater than the ‘large superannuation threshold’ of $3 million.
Anyone meeting a condition of release prior to the commencement of Div 296 with unrestricted non-preserved benefits may wish to use the flexibility to withdraw sufficient from the fund and stay below the $3 million cap.  Conditions of release to gain access to benefits may include:

  • meeting a condition of release of retirement for superannuation purposes,
  • reaching age 65, or
  • commencing a transition to retirement income stream (TRIS) from age 60.

However, an individual may require that adjustments occur prior to 30 June 2025 as they may think that the impact of the Div 296 tax can be eliminated for the 2025-26 financial year.  However, the case study above shows that in some cases the Div 296 tax payable will depend on the individual’s TSB on 30 June 2026 and not their adjusted TSB.
Anyone between the ages of 60 and 65 who does not meet a condition of release with a ‘nil’ cashing restriction may wish to commence a transition to retirement income stream (TRIS).  The reason is that the balance of the TRIS is not measured against the individual’s Transfer Balance Cap (TBC) until an individual has retired for superannuation purposes or reached age 65. Irrespective of the individual’s balance in the fund, the whole balance may be used to commence a TRIS and provide them with an income stream of up to 10% of its opening balance for the financial year.  However, care should be taken for those approaching a condition of release with a ‘nil’ cashing restriction such as age 65 because the TRIS then falls into retirement phase and is counted for purposes of the member’s TBC.

EXAMPLE

 

Dina
Consider Dina who is age 60.  She does not meet a condition of release with a ‘nil’ cashing restriction and has not retired for superannuation purposes.  She expects that her TSB on 30 June 2025 is likely to be $3.2 million.   
Prior to the commencement of the 2025-26 financial year, she decides to commence a TRIS with the total of her fund balance as at 1 June 2025.  She withdraws the maximum TRIS which is equal to her balance in the fund and an income stream equal to 10% of that balance ($320,000) without any pro rating of the amount withdrawn.  As at 30 June 2025 her TSB is $2,880,000.  If Dina’s adjusted TSB remained under the $3 million cap as at 30 June 2026 she would not be subject to Div 296 tax.  This would also be possible if Dina withdrew an amount during the 2025-26 financial year and on 30 June 2026 her TSB.
As another possible alternative, Dina could commence a part-time casual job and cease working in that job.  The cessation of the job after Dina has reached age 60 will mean she meets a condition of release of retirement.  She has ceased gainful employment after reaching age 60 for purposes of reg 6.01(7) of the Superannuation Industry (Supervision) Regulations 1994 (SISR).  This allows her to withdraw a lump sum or commence an allocated pension which will be subject to her TBC, which is currently $1.9 million.
If Dina decided to delay commencement of the pension until the 2025-26 financial year, the amount withdrawn would be added back to her TSB.  If that meant that the adjusted TSB was greater than the $3 million cap then she may be liable to Div 296 tax for the 2025-26 financial year if her TSB on 30 June 2026 is also greater than $3 million.  Even if her TSB on 30 June 2026 was greater than $3 million it is possible that commencing the pension during the year may reduce her Div 296 liability as in the earlier case study of Toni.

One issue that arises with the withdrawal of a pension or lump sum from the fund is answering the question, ‘What will the member do with the amount received if they don’t need it to live on?’  There is no end to the possible answers which could include investing it, buying a new residence, an overseas trip or even putting it under the bed.

Division 296 tax – is it best to move to tax-effective accounting if Div 296 becomes law?

As a general practice, many funds do not use tax effect accounting and the decision to use must be considered on a case by case basis.  As the accounts are not general purpose financial statements then the ultimate decision is up to the fund trustees and the fund’s accountant.  A note in the fund’s accounts should reflect whether tax effect accounting is being used.
There may be consequences for a fund that starts using tax effect accounting if it is not currently being used by the fund.  As a general rule, tax effect accounting recognises the fund’s tax liability assuming that all the assets are disposed of at the end of each financial year.  However, if the assumed disposal of assets results in a loss then it may result in a deferred tax asset.
When Division 296 tax is being considered deferred tax accounting will recognise the tax payable if the asset were sold on 30 June.  This raises a tax liability provision for deferred tax in the fund’s statement of financial position or balance sheet.
For example if the fund owns a property and it is increasing in value then by using tax effect accounting the member balances will be lower at the year-end because of the notional tax calculation.  The member’s total superannuation balance will also be lower and therefore the Division 296 tax would be expected to be lower too.
However, while at first blush the use of tax effect accounting may seem attractive the ongoing impact may not be as clear.  This would occur when the asset is disposed of and when capital gains are calculated.  The reason is that the use of tax effect accounting may reduce the member’s total superannuation balance on a year by year basis. 
When the asset is eventually disposed of the member’s total superannuation balance would take the capital gain without any reduction for the amount of tax previously taken into account when calculating the member’s total superannuation balance.  The same effect would occur if a member was in accumulation phase and part of that balance was used to commence an income stream.
The ultimate effect by using tax effect accounting is a timing difference.  This would resolve itself when the asset was disposed of or part of the member’s benefit was used to commence an income stream.  The result is that the member’s total superannuation balance would be no different after the sale or commencement of the income stream due to the tax effect adjustment.
Tax effect accounting does not necessarily mean that the member’s Division 296 outcome will be improved.  Whether it is useful may depend on a number of factors based on the member’s particular circumstances.  Don’t forget that if the ATO considers that the purpose of using tax effect accounting to reduce a person’s total superannuation balance and avoid Div 296 tax it may fall foul of Part IVA of the tax law.

What is the current state of the art with Division 296 tax?

As indicated above, the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill were passed by the House of Representatives in October 2024 and introduced in the Senate on 21 October 2024 but lapsed on 21 July 2025 at the end of the previous parliament.  The matter is expected to be reintroduced into the parliament during the Spring 2025 sittings.  The reintroduced bills may differ from the previous bills that lapsed at the end of the previous parliament.

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June 2025 Ask Graeme Webinar

Question

To reduce member exposure to Div 296 tax some SMSF trustees have suggested that they would like
to post all revaluation increases to an investment reserve.

This is rather than allocating the unrealised increase in market values of currently held assets directly to member accounts at every year end.

The actual increase in an asset’s value is later allocated to member accounts only when the asset is actually sold and the SMSF is able to supply sufficient funds to pay the Div 296 tax at that later point instead.

Is this feasible or would this fall foul of existing ATO guidance?

Comments


In effect this is using tax effect accounting which makes provision for the potential Div 296 tax at a later point in time. As tax effect accounting relates to the tax payable by an entity and the liability for Div 296 tax is with the member of the fund it would appear that to make a provision in the fund’s accounts for future Div 296 tax is not available. The legislation provides that a member can refer the Div 296 tax liability to the fund for payment.

In relation to the use of investment reserves the ATO has published SMSF Regulators Bulletin SMSFRB 2018/1 on the uses of reserves in SMSFs. The ATO has a number of concerns which include
the use of reserves to manipulate a member’s balance in the fund. If the reserves are used for purposes of manipulating a person’s total superannuation balance then the ATO may take action as indicated in the Bulletin. Here is the link to the Bulletin.

Question

How will Div 296 work for SMSF asset valuations?

Comments


Asset valuations for purposes of Div 296 will be no different to the valuations used for the accounts of the SMSF. The reason is that the member’s Total Superannuation Balance is reported to the ATO at the end of the financial year and is used to calculate the member’s ‘superannuation earnings’ for the year and the calculation of the proportion of the member’s Total Superannuation Balance that lies above the $3 million threshold.

In relation to asset valuations, over the past year the ATO has had a project which identified 16,000 SMSFs with assets in property and unlisted trusts that where the fund had reported the same value for 3 or more consecutive years. Trustees and their advisers were asked by the ATO to make adjustments so that the assets were reported at their market value. When annual returns for the funds under review were lodged with the ATO 80% had adjusted the property values but only about 48% had adjusted the value of unlisted trust investments by SMSFs.

Question


Is a re-contribution strategy available for only 60-65 year-old range or up until age 75?

Comments

A re-contribution strategy is available up to 28 days after the month in which the member has reached age 75. In simple terms the member may withdraw an amount from their superannuation
account and recontribute non-concessional contributions back to their account or another member’s account in the fund, such as their spouse

A recontribution strategy is where a member:

• has an unpreserved benefit which can be paid to them from the fund, and

• part of all of the amount received is recontributed to superannuation as a non-concessional contribution.

Benefit of re-contribution strategy

• Reduction of the taxable component of a benefit mainly for estate planning purposes

• For Div 296 purposes it can reduce the member’s account and the amount recontributed will increase the account of the member’s spouse in the SMSF

A re-contribution strategy requires that a condition of a release of retirement is met to withdraw an
amount from super.

Conditions of release of retirement:

• Person is older than preservation age (currently age 60) and has ceased any gainful employment in which they were engaged between age 60 and 65,

• Person has retired from gainful employment between age 60 and 65, or

• Person is age 65 and over.

The amount received from the fund is made, wholly or in part, back to superannuation as a non- concessional contribution.

Question


If a super fund’s taxable income is calculated by not following tax law, and an accountant will not amend the financial statements, i.e. claiming ASIC fines as an allowable deduction, or treating property capital improvement items as deductible repair expenses, the financial statements can be qualified, but is there a SIS contravention? and is there a reportable SIS contravention? I have considered s65(1)(b) but have not used it.

Note: s65(1)(b)

I am not sure why reference has been made to s65(1)(b) as it relates to providing financial assistance to fund members or their relatives, as follows:

65(1) A trustee or an investment manager of a regulated superannuation fund must not:

(a)…..

(b) Give any other financial assistance using the resources of the fund to:

(i) a member of the fund; or

(ii) a relative of a member of the fund.

Comments:
When accounts are prepared for any entity, including an SMSF, they may be for different purposes. For example, for accounting purposes the net income of an SMSF may account for ASIC fines and treat capital items as expenses. However, when the accounts of the SMSF are being prepared for taxation purposes adjustments may be made to the accounting records to exclude those expenses which are not permitted as tax deductions.

For purposes of GS009, which is the AuASB’s Guidance Statement on Auditing SMSFs, clause 21 says:

21. The auditor is required under the SISA to:

(a) provide an auditor’s report on the SMSF’s operations for the year to the trustee in the approved form, no longer than 28 days after the trustee of the fund has provided all
documents relevant to the preparation of the report to the auditor; (b) report in writing to the trustee, if the auditor forms the opinion in the course of, or in connection with the performance of, the audit of the SMSF, that:

• (i) any contraventions of the SISA or SISR may have occurred, may be occurring or may occur in relation to the SMSF (section 129 of the SISA); or

• (ii) the financial position of the SMSF may be, or may be about to become, unsatisfactory (section 130 of the SISA);

Therefore, for purposes of the SISA or SISR the auditor is to report on the operations of the fund for the relevant financial year and whether there have been any contraventions of that legislation including the financial position of the fund. Therefore, the audit required does not include an audit of the fund’s income tax returns and whether an amount is assessable income or a tax-deductible expense.

Just to confirm that the Income Tax Assessment Act 1997 does not allow a tax deduction for fines or capital expenses. However, capital expenses may be added to the cost base of a CGT asset if permitted by the legislation. Here is what the ATO’s website says about fines and capital expenses:

No deduction for fines:

Section 26-5 of the Income Tax Assessment Act 1997 specifically makes penalties or fines imposed as a result of breaches of an Australian law non-deductible.

Deductions for capital expenses:

“You can claim a tax deduction for expenses relating to repairs, maintenance or replacement of machinery, tools or premises you use to produce business income, as long as the expenses
are not capital expenses.” ATO website Capital expenses can add to the cost base of a CGT asset.

Question

I have a client who turns 75 years old on 29 June 2025 and wishes to make the maximum non-concessional contributions to her SMSF before her cut-off date which is 28 July 2025.

Answer:

Age eligibility

For the 2022–23 and later financial years, if you're under 75 years of age at any time in a financial year, you're eligible to use the bring-forward arrangement in that financial year, subject to the age-related and other restrictions on the types of non-concessional contributions your fund may be able to accept.

If you're 75 years or older for all of the financial year, you're not eligible to use the bring-forward arrangement in that financial year.  Link to ATO website:

https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/non-concessional-contributions-cap

A person who is age 75 on 29 June 2025 may be able to access the 3 years bring forward rule in the 2024-25 financial year.  However, they could not access the bring forward rule in the 2025-26 financial year as they would not be under age 75 at any time in that year.

Therefore, if they wish to use the 3 years bring forward rule which allows a non-concessional contribution of $360,000, it would need to be accessed in the 2024-25 financial year, subject to the person's Total Super Balance on 30 June 2024 being less than $1.66 million.

If the person wished to contribute in the 2025-26 financial year up to 28 days after the month in which they turned age 75 (28 July 2025) they could only make non-concessional contributions of $120,000 for that year, subject to their Total Superannuation Balance being under $1.9 million on 30 June 2025.

Options:

non-concessional contributions 2024-25 financial year

non-concessional contributions 2025-26 financial year

To use the 3 year bring forward rule the Total Super Balance must be less than 

$1.66 million on 30 June 2024

$1.67 million on 30 June 2025

non-concessional contributions

$360,000 if 3 years bring forward rule can be used

$Nil

$240,000 if 2 years bring forward rule can be used

$Nil

$120,000

$120,000

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December 2024 Ask Graeme Webinar

On the 4th December 2024 we hosted our first Ask Graeme Q&A webinar with SMSF industry expert Graeme Colley. Graeme fielded questions on Div296, death benefits, and many other topics. To view the recording or read the Q&A, see below.

Division 296

Q: Could you please share your thoughts on Div 296?

A: As of the most recent sitting of Parliament last week, the bill has not been included in the government's list of priority legislation, raising questions about its viability and the likelihood of it becoming law in this term of the Parliament.

On 27 November Senator Dean Smith (WA) moved a motion in the Senate to divide The Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 into two bills – one bill which includes only the Div 296 amendments and the second bill which will cover the ‘Other Measure’ part of the original bill. The other measures relate to increased public transparency of Australian Charities and not-for-profit organisations and amendments to the Corporations Act to provide exemptions for foreign financial services organisations to hold an AFS licence.

With the likelihood of only one more parliamentary sitting scheduled in February (4-6 and 10-13 of February) before the next Federal Election, the future of the proposed Div 296 tax remains uncertain. It appears increasingly unlikely the Bill will be introduced in its current form to commence by 1 July 2025. 

The issues with the introduction of Div 296 are:

Main issues:?

  • Taxation of the ‘growth’ element including unrealised capital gains on a year-by-year basis, and
  • Lack of indexation of the $3 million threshold.

Other issues:

  • Valuation of fund assets
  • Lack of flexibility to withdraw benefits
  • Payment of the tax from the funds which have illiquid assets
  • No notional CGT discount on assets owned by the fund for greater than 12 months,
  • No adjustment to losses carried forward if the member’s adjusted TSB (total
    superannuation balance) falls below the $3 million threshold, and.
  • Effective double tax on capital gains and unrealised capital gains attributable to the
    adjusted TSB

Q: What is the current status of Div 296 and how is it calculated?

A: Division 296 in its current form in the The Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023 calculates the tax in three stages as follows:

– Stage 1

Adjusted Total Superannuation Balance
Adjusted TSB = TSB for the current financial year + lump sum and pension withdrawals for
the year – any contributions for the year

Withdrawals (added back)
• Lump sums
• Income streams
• Spouse contribution splitting
• Family law splits
• Div 293 payments made under a release
authority.

Contributions (deducted)
• Concessional contributions less tax
• Spouse contribution splitting received in
account
• Family law splits received in account
• Transfer of death benefit to beneficiary
• Transfers from reserves

– Stage 2

Proportion of earnings above $3 million

Where:
TSB means the person’s adjusted total superannuation balance for Div 296
purposes

– Stage 3

Calculate Tax Liability

An example of a calculation of the Div 296 liability for a person is included in the slides.

Q: Preparation for Div.296 – Is planning worth it given that it’s unlikely anything will be passed before Christmas?

A: There are no more sitting days of the Parliament this calendar year which means the bills won’t be passed before Christmas 2024. As it seems very unlikely the bills will be debated in the Senate before the next election the legislation may not be passed before the Federal election is announced. If that’s the case then all bills that have not passed into law when the lection is called lapse. The bills are then required to be reintroduced into the House of Representatives and Senate and their reintroduction depends on what the incoming government decides.

Death benefits

Q: What is the timeframe for paying out a death benefit? It covers some practical aspects on death benefit payment complexities.

A: Regulation 6.21 of the SISA requires that death benefits are paid as soon as practicable.
Practicable is not defined in the legislation and has its usual meaning which is, as soon as realistic, possible or feasible.

For these purposes the ATO accepts that payment of a death benefit lump sum or a new death benefit pension within 6 months of the member’s death is reasonable. However, if payment is not possible within that time, because there are issues delaying the payment of the benefit, then a longer period will be accepted if the trustees can show valid reasons why payment has been delayed.

Q: How to practically pay out SDB (superannuation death benefit) when SMSF investments include many unlisted investments, If an SDB is paid outside the 6 months mainly due to awaiting tax statements we won’t be claiming ECPI subsequent to the DOD FY. any issues?

A: The ATO accepts as a general rule that death benefits should be paid within 6 months of the member’s death. However, where it is expected that the transfer or realisation of the fund’s investments may take longer than that it is up to the trustee to provide reasons for the delay in payment of the death benefit.

As a general rule waiting for tax statements relating to the investment would fall into this category.

TPD payout from super fund
Total and permanent disability benefits can be paid from the fund as pensions or lump sums depending on the rules of the fund and the member’s choice of the payment.

Pensions
Where a member is under age 60 the taxable component of a TPD pension is taxed at ordinary personal rates but receives a 15% tax offset. From age 60 the pension is tax free. (s 301–40, ITAA97)

Lump sums
Lump sums paid on the total and permanent disability of a member receive concessional tax treatment as the tax-free component is increased by the amount of the benefit that would have been received had the person not become disabled (s 307–145, ITAA97). The increased amount is calculated by using a formula which is based on the total benefit apportioned over the member’s service period and days to retirement from the time they were disabled.

The formula is:
Where: days to retirement is the number of days from when the person stopped being capable of being gainfully employed to his/her last retirement day.

Q: What scope for rectification exists when TRIS max has been exceeded? (Payment made direct to 3rd party for personal expense)?

As a general rule once the TRIS max has been exceeded then it fails to meet the pension standards. The TRIS is considered to have ceased from the commencement of the financial year in which the overpayment occurred. It is not possible for the ATO’s 1/12 th rule to apply to overpayments, that rule only applies only applies on a once only basis to underpayments.

To work out whether a rectification is possible you would need to consider the circumstances which led to the excess being paid. If the payment was made direct to the 3 rd party for a personal expense, and it has been outstanding for a short period then maybe the payment was made in error and the fund could be reimbursed. If the member has any unrestricted non-preserved benefits, then it could be claimed that the amount paid to the third party was really paid from those benefits and the accounting to withdraw the amount from the pension account was made in error and was really the payment of a lump sum from the unpreserved benefits.

Investments

Q: If an investment is in liquidation, can the trustee reduce the value to $1, so as to avoid a qualification?

This is a good question as many accountants have a tendency to place a nominal value on the value of the investment as in their opinion the likelihood of recovery due to liquidation is slim. If the value of $1 placed on the share represents its market value, then it may be accepted for SIS purposes.

However, the ATO says that for CGT purposes the value of the shares is based on the following where:

a shareholder, and a liquidator or an administrator of a company declares in writing that they have reasonable grounds to believe there is no likelihood that shareholders will receive any further distribution for their shares, or  an investor who holds a financial instrument in a company, and the liquidator or administrator of the company makes a declaration in writing that the financial instrument has no value or negligible value.

Q: How often should Trustees undertake a comprehensive commercial property valuation once unrealised gains are to be taxed?

The provisions of regulation 8.02B of the SIS Regulations require that the assets of a superannuation fund are valued at their market value from year to year. This value is to be in accordance with the ATO’s valuation requirements that the valuation is based on objective and supportable data. The valuation of a member’s total superannuation balance for purposes of Division 296 tax uses the market value of the investments which takes into account the increase in the value of the fund’s assets including unrealised capital gains.

Please note that it is unlikely Division 296 tax will become law in the current sittings of the Parliament and its reintroduction into the Parliament may depend on the outcome of the Federal government election to be held in 2025.

Q: How to best gain sufficient appropriate evidence for SMSF investments in unlisted companies and trusts?

The main issue when obtaining appropriate evidence to determine the value of the fund’s investments in unlisted companies or trusts is that accounts may be maintained at cost. Accounts which value the assets of the unlisted company or trust at market value can be difficult, if not impossible, to obtain. Where the value of the fund’s assets cannot be obtained it may be necessary for the auditor to qualify the fund accounts.

It is up to the fund’s trustee to verify that the appropriate valuation of the shares, units or other investments in the unlisted company or trust are at their market value.

Q: Valuation requirements and process for members to purchase a fund asset (property)?

The valuation requirements and process for members to purchase an asset from the fund should be in line with the ATO’s valuation guidelines and the provisions of the SIS Act. For example, if a collectable or personal use asset is being acquired from the fund by a related party then it is necessary under reg 13.18AA(7) of the SIS Regulations to obtain a valuation from an appropriately qualified independent valuer.

Other questions

Q: Does the payment of a fund expense personally by the trustee which is processed as a contribution create a NALE event?

The answer to this question depends on the circumstances. However, in isolation, if the trustee paid the expense and the amount paid was considered to be on an arm’s length basis then it is unlikely a NALE event would have occurred.

Probably the best strategy in these cases is for the fund to reimburse the trustee for the fund expense and a cash contribution made by the contributor to avoid any likelihood of the transaction being treated as a NALE event.

Q: What can be done when individual trustees(ex's) where ex-wife is not cooperating and taking illegal withdrawals?

This is a matter that needs to be sorted out with the particular financial institution to see whether they are prepared to freeze the accounts or investments. What should have been done as part of any family law settlement is that the authority on the fund’s bank accounts and investments require both parties to consent to the payments from the fund or the sale or transfer of assets. Another option could be to have account transactions and investments frozen so that no withdrawals can be made from the accounts. The ATO as regulator of SMSFs can exercise its powers to freeze the fund accounts and investments but this may take longer than is reasonable.

Q: Life Time Complying Pensions – when is it best to move on from this product and is it only the choice to move to a market linked?

A: The answer to this question depends entirely on the circumstances of the particular client and the reasons they wish to move from the life time complying pension to a market linked pension.

Currently, Treasury has published draft regulations [Treasury Laws Amendment (Self- managed superannuation funds—legacy retirement product conversions and reserves) Regulations 2024 (draft regulations)] which, if it becomes law, will allow a member to commute the pension and transfer the commuted amount to the member’s accumulation phase. This is required to take place within 5 years of the legislation becoming law. The commencement date will not be known until the legislation is lodged in the Parliament. In view of the tax concessions available in this draft legislation is may be worthwhile to wait until we see the final legislation.

Q: If a fund invests via a wrap account is it sufficient to rely on their reports if we have an audit report from the wrap provider outlining internal controls? Or should we just utomatically qualify our audit report, I cannot see many trustees keeping their own records to substantiate the transactions in the wrap account, that is the whole point of investing in a wrap account so the trustees do not need to do this.

A: In the case of Investor Directed Portfolio Services (IDPS) (WRAP accounts), it’s necessary for the trustee to obtain an auditor’s report issued in accordance with ASAE 3402. Where data has been transmitted via the use of data feeds, then an ASAE 3402 type 2 Assurance report that relates to the operating effectiveness of the processes and controls is required.

In the absence of the required document, the auditor is restricted in providing an opinion on the accuracy of the reports provided by the IDPS. Because the report in accordance with ASAE 3402 has not been provided to the fund auditor then they would qualify the audit report and lodge an Audit Contravention Report with the ATO. It is up to the trustees to ensure adequate documentation is obtained which support the market value of investments. As the question indicates it may result in many trustees keeping their own records in relation to the wrap account which negates the point of its use.

Q: Any idea if the $1.6M disregarded small fund assets will be indexed to 1.9M to align with transfer balance cap?

A: The Explanatory Memorandum to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 clearly states that an individual’s transfer balance cap will be indexed in line with changes to the Consumer Price Index. However, the $1.6 million amount used for disregarded small fund assets will not be indexed.

Here is an extract from the relevant part of the Explanatory Memorandum: 3.17 An individual's transfer balance cap is $1.6 million for the 2017-18 financial year and is subject to proportional indexation on an annual basis in $100,000 increments in line with the Consumer Price Index (CPI).

10.53 It will not be necessary for a person with an interest in the small fund to be receiving an income stream from that fund. A small fund will be excluded from using the segregated assets method where a member of the fund, with a total superannuation balance that exceeds $1.6 million, is a retirement phase recipient
of an income stream from another superannuation income stream provider. 

Q: You only have 2 goes at paying the benefit….is there flexibility there?? (think this relates to death benefit)

A: The provisions of regulation 6.21 of the SIS Regulations is a compulsory cashing requirement that applies only where a death benefit is payable. The regulation says that ‘a member's benefits in a regulated superannuation fund must be cashed as soon as practicable after the member dies’ for each person to whom benefits are paid as:
• a single lump sum, or
• an interim lump sum and a final lump sum.

Where benefits are paid in other circumstances the legislation does not place restrictions on the number of lump sums that may be paid.

There are a number of situations on the death of a member, where it may be impossible to comply with this requirement. An example would be when a death benefit is paid by the transfer of shares. It is understood that each parcel of shares constitutes a lump sum and may not meet the compulsory lump sum payment requirements of regulation 6.21.

Q: In a scenario where the sole member of a SMSF (Corporate Trustee structure with deceased member and non-dependent adult child as directors) passes away and the death benefits re to be paid out to the deceased's non-dependent adult child (age 60+), I assume we are meant to calculate the PAYG Withholding first before arranging for the death enefits to be paid out i.e. Gross Payment (Deceased member's balance in SMSF) LESS PAYG Withholding = Net Amount to be paid out. However, how would the PAYG Withholding spect of this scenario work if the beneficiary is opting to receive a portion of the death benefits as an in-specie transfer of listed shares ($100k market value) into their personal name?

A: In circumstances where tax is payable to a non-dependant child as a lump sum, PAYG is required to be deducted from the lump sum payable. The amount of tax payable is calculated on the taxable component of the death benefit lump sum.

If the death benefit is made as an in specie transfer of assets the value of the shares transferred in is included in the lump sum and subject to tax on the taxable component. The fund is required to pay PAYG based on the value of the assets transferred in specie and any cash included in the death benefit lump sum.

Q: Any examples of when the super fund holds a large value of cryptocurrency and they have lost the wallet access details upon death of a member? how long could this take?

A: In some cases, this issue may never be solved. However, as the benefit is required to be paid as soon as practicable, locating the wallet may take a long time. Providing the trustees are making reasonable attempts to locate the wallet then it may be regarded as falling within the ‘soon as practicable’ requirement.

Q: Single member fund with property – takes 2 years to sell down all the assets – still ECPI until benefits paid to the estate?

A: Whether the assets and relevant income would come within the fund’s ECPI, depends on the circumstances of the case. There are a number of situations where it could occur, for example:

• where a reversionary pension is paid to a death benefits dependant,
• if a non-reversionary pension was paid to the deceased.

The residual amount of the non-reversionary pension will remain in the fund’s exempt pension assets until the beneficiary makes a decision whether they should receive a death benefit such as a lump sum or death benefit pension. If the death benefit pension has been selected then the assets supporting the death benefit pension will remain as part of the fund’s exempt current pension income.

Information from Graeme Colley and Cloudoffis is general in nature. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided.

Disclaimer

The information provided here is intended to be general in nature and is not personal financial (or financial product) advice. It does not take into account the objectives, financial situation or needs of you or your client.

Before acting on any information, you should consider the appropriateness of the information provided having regard to the objectives, financial situation and needs of you or your client. In particular, you should seek independent professional advice prior to making any decision based on the information provided in the video or text.
You should consider the appropriateness of this information having regard to the individual situation and seek taxation advice from a registered tax agent before making any decision based on the content of this presentation.
Any examples and calculations within this presentation are provided for illustrative purposes only. They should not be relied on.
Viewing the content provided, is considered as acknowledgement, acceptance and agreement to this Disclaimer and the contents contained within.

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The Cloudoffis Bulletin-
September Edition

The Cloudoffis team has been delivering demos for eager tax teams across Australia, who have long been awaiting for a Cloudoffis solution for tax workpapers. With the launch of Tax Sorted just days away, we’re excited to expand our services beyond SMSF, so be sure to share the news with your tax team!

This month, we’re shining a spotlight on our SMSF Accountants, diving into our Sorted Lite and Class integration as we reflect on another fantastic Class Ignite event and the opportunity to reconnect with so many of our customers. We’re also featuring our SMSF Sorted Pro customer, Emily Cooper from SMSF Australia, who reduced her firm’s audit file reviews by 50% and grew 100% year on year supported by Cloudoffis.

We’re pleased to welcome two new members to our team: Graeme Colley, a man who needs no introduction, joins us as an Independent Industry Advisor, and Emma Crisp, who comes on board from Xero as our Senior Marketing Manager. So, grab your cuppa and settle in, there’s plenty to explore this month.


Graeme Colley,
Independent Industry Advisor
Cloudoffis

Emma Crisp,
Senior Marketing Manager
Cloudoffis


Introducing Tax Sorted workpapers:
we’re expanding beyond SMSF!

We’re thrilled to announce Tax Sorted, the latest member of the Cloudoffis family, is going live next week!

Tax Sorted empowers tax accountants to streamline their processes with automated workpaper creation, allowing team members to produce more accurate tax workpapers for businesses and individuals, faster than ever before.

Wondering why we’re branching out beyond SMSF? Keep reading to find out!
Find out more about Tax Sorted

Class Ignite 2024

A big thanks to our partners at Class for hosting us, Class Ignite was a fantastic industry event, uniting the SMSF accounting community to discuss trends, opportunities, and technology.

This year, our Cloudoffis theme was “Enjoy More Coffee Time with Class and Cloudoffis.” We gave away nearly 100 Cloudoffis coffee cups, and three lucky attendees won brand new DeLonghi coffee machines!

Wondering why we’re branching out beyond SMSF?

These events provide an opportunity to connect with our customers and ensure that every team is maximising the benefits of our free SMSF Sorted Lite integration with Class.

A special thanks to Leanne for visiting our stand and sharing her insights on how Sorted Pro has helped her grow her new practice, SMSF Co-Pilot. Check her feedback below:
Play Video


Get started with Sorted Lite

If you’re using Sorted Lite or looking to get started, be sure to jump onto our website and download our easy to navigate user guide.

$500 referral bonus SMSF Sorted Lite accountants

Did you know that as an SMSF Sorted Lite accountant, you can earn a $500 referral bonus when you refer your auditor to use Auditomation?

With your auditor on Auditomation, not only will you gain more control over every fund you manage, but you’ll also be able to automate your workpapers and submit audit files to your auditor with just one click. And with both of you collaborating on Cloudoffis, you’re guaranteed to speed up the turnaround time of funds, as auditors will receive more structured data to work on. You’ll both benefit from easier collaboration with improved query management tools.
Refer Now

How SMSF Australia Slashed Audit File Reviews by 50% and grew 100% year on year supported by Cloudoffis

In the fast-paced world of Self Managed Super Funds, efficiency isn’t just a buzzword; it’s a critical factor for success. For SMSF Australia, the journey to greater efficiency continued with the adoption of Cloudoffis, a solution that transformed their audit file review process. Here’s how they achieved these remarkable results with Cloudoffis as their wingman.
Read the full story


Cloudoffis Tours Tasmania

This month, our team hit the road and toured Tasmania, engaging with both new and long time customers to showcase our latest innovations, across Sorted Pro, Auditomation, and Tax Sorted – our new Tax Workpaper solution launching next week. A huge thank you to Michael Meredith of Bentley’s Tasmania for hosting us and facilitating so many engaging conversations in the region.

We’re always on the move, so if you’d like to meet face-to-face with our team, don’t hesitate to reach out. We love visiting both existing and potential clients to help them get the most out of their Cloudoffis experience.
Book a time

Product updates

Import & Re-import Flow in Auditomation & Sorted Pro

We are thrilled to announce a revamped import & re-import flow for both Sorted and Auditomation! 🎉 Experience the new, efficient workflow today.

What’s New?

  • Instant Access: The moment you import financial data, you can jump straight to the job dashboard. No more waiting around!
  • Improved Efficiency: Financial data is accessible immediately while other data like observations, reports, and documents load in the background.
  • Enhanced Performance: With backend optimisations, system performance is significantly boosted, ensuring smoother execution and better resource management.
  • Streamlined Processes: These enhancements will make your existing processes more efficient, saving you valuable time.

BGL Workpaper Doc

We’re excited to bring Auditomation customers a major time-saving enhancement: Auto Availability of BGL Workpaper Docs! 🚀

Previously, you had to manually convert each BGL Workpaper document to a Cloudoffis-supported format to use our bookmarking and search features. This was time-consuming, especially with a large number of documents.

The Solution? BGL Workpaper documents will now be automatically converted to the Cloudoffis-supported format. No more manual conversions needed!





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