Govt has over-complicated Div 296 approach

Mike Taylor

Managing Editor/Publisher, Financial Newswire

20 January 2026

The Federal Government’s efforts to deliver appropriate settings around its Better Targeted Super Concessions legislation has resulted in an over-complicated approach which fails to find the right balance, according to the SMSF Association.

In a submission filed with Treasury this week, the SMSF Association has detailed the unintended and unfair outcomes stemming from the legislation and is arguing that the instances are not unusual or unlikely scenarios.

“The imposition of Division 296 tax on individuals who may not be the beneficiaries of the superannuation benefit which gave rise to the Division 296 liability, and inappropriate amounts of Division 296 earnings being attributed to in-scope members, are some examples,” it said.

“Adjustments are required to ensure these, and other instances of unfair outcomes and unintended consequences are minimised.”

Releasing the submission, SMSF Association chief executive, Peter Burgess acknowledged the Government’s intention of reducing tax concessions for individuals with very large superannuation balances but said Treasury had failed to get the balance right.

He said the identifies multiple scenarios, none of which are unusual or unlikely – that could lead to unintended and unfair outcomes under the draft legislation.

“These include circumstances where individuals may be liable for Division 296 tax despite not being the ultimate beneficiaries of the superannuation benefits that give rise to the tax, as well as cases where inappropriate amounts of earnings are attributed to members who fall within scope.

“These are not theoretical concerns,” Burgess said. “They are practical consequences of the way the legislation is drafted. Without changes, ordinary superannuation events could produce clearly inequitable outcomes.”

The submission calls for targeted amendments to minimise these outcomes and also proposes a simplification of the capital gains tax (CGT) adjustment provisions to reduce unnecessary complexity.

“While applauding the Government for enabling capital gains accrued before 1 July 2026 to be excluded from the calculation of Division 296 earnings, we believe a simpler approach would be to calculate the cost base as the greater of the asset’s market value at 30 June 2026 or the asset’s CGT cost base.

“This approach would remove the need for an election to be made – reducing the regulatory burden on all participants across the small superannuation fund sector.

“Although the Government’s decision impact analysis has not yet been released, it’s clear the October 2025 changes will significantly increase both implementation and ongoing compliance costs for the superannuation industry.

“Ultimately, these costs will be borne by all super fund members, not just those captured by Division 296,” Burgess said. “This raises serious concerns about the long-term sustainability of the policy when weighed against the expected revenue gains.”

“We urge the Government to reconsider elements of the draft bills to ensure the policy is fair, targeted and workable.”