More consultation urged on Div 296

The Federal Treasurer, Jim Chalmers may be close to striking a deal with the Australian Greens on the $3 million superannuation tax cap regime, but the Tax Institute is urging further targeted consultation.

In a submission to the Government this week not only reinforced its concerns around the taxation of unrealised capital gains under the Division 296 changes, but also raised the thorny issue of being able carry back unrealised capital losses.

Tax Institute president, Tim Sandow urged the consultation stating that his organisation is committed to working constructively with the Government, Treasury and the Australian Taxation Office (ATO) “to ensure Australia’s taxation and superannuation laws are fit for purpose and effectively implemented.

Among the priority issues cited by the Tax Institute was the need to delay the implementation of payday superannuation by 24 months, family trust distribution tax and the Division 296 changes tied up in the $3 million super tax cap.

“The Tax Institute supports efforts to improve equity in the superannuation system, but considers that Division 296, as proposed, requires significant redesign,” the Tax Institute’s Head of Tax & Legal, Julie Abdalla said.

“The measure must be amended to reduce the inequitable impact of taxing unrealised gains and ensure it operates fairly and efficiently.”

The Tax Institute said other concerns include the lack of indexation of the $3 million threshold, the inability to carry back unrealised losses, and anomalies such as the imposition of tax on deceased estates depending on the date of death.

“Further targeted consultation is essential before the measure is progressed,” it said.

On family trusts, the submission said the it was essential that the rules remained fit for purpose and reflect contemporary arrangements.

“There are widespread misunderstandings by taxpayers as to what actions might result in an FTDT liability arising, particularly in relation to distributions by or to associated entities that are controlled by related family members, but which technically fall outside the definition of ‘family group’,” it said.

“Even inadvertent errors, without any tax avoidance motive can result in multi-million dollar assessments of FTDT and the general interest charge which is non-deductible from 1 July 2025, potentially bankrupting many Australian businesses.

“The rules should also be amended so FTDT notices issued by the Commissioner are limited to a four-year amendment period.”