Shield and First Guardian inequality cited on Div 296

Mike Taylor

Managing Editor/Publisher, Financial Newswire

22 January 2026

The circumstances highlighted by the handling of the Shield and First Guardian collapses have been cited as a key reason to implement detailed changes to the draft legislation underpinning Division 296 arrangements.

Treasury has received a significant number of responses to its consultation around the exposure draft of the Government’s Better Targeted Super Concessions legislation with most pointing to the need for significant changes to ameliorate substantial disadvantage, particularly with respect to self-managed superannuation funds (SMSFs).

The Shield and First Guardian issues have been raised by the Institute of Financial Professionals Australia (IFPA) specifically with reference to investment losses and the manner in which they have been viewed by the Australian Financial Complaints Authority (AFCA).

IFPA pointed out that under the draft legislation, individuals who start with a superannuation balance over $3 million but end the year under that amount could be unfairly penalised by having their Division 296 liability calculated by reference to a higher opening balance that might no longer reflect their financial position.

“Similarly, contributions and insurance proceeds may also increase the end balance which would be unfair. Taxing notionally high superannuation balances rather than actual superannuation balances is unfair,” it said.

It said the Shield and First Guardian cases “demonstrate how the ‘higher or two balances’ rule can operate unfairly in practice”.

“The application of the opening balance as the reference point to members who suffer significant losses is unfair because members will pay tax corresponding to lost wealth. This is inconsistent with the stated policy intent of better targeting superannuation concessions,” the IFPA response said.

It said that, on this basis, the legislation should be amended to ensure that the end of year Total Superannuation Balance (TSB) is used.

The response also said that structured settlement amounts and total and permanent disability (TPD) benefits share key characteristics: both arise from serious injury or disability, are typically received as one-off lump sum payments, and are intended to provide long-term financial security and support following a significant life event.

“There is no principled basis for treating these amounts differently for Division 296 purposes. This disparate treatment can also disadvantage self-employed individuals, who typically rely on TPD insurance rather than employer-backed personal injury claims available to employees. This can inadvertently create an inequity based on employment status,” IFPA said.

For their part, the major accounting groups also pointed to the “fundamental unfairness” of holding a taxpayer liable for a Division 296 tax in relation to income derived by the superannuation fund during a particular income year where the taxpayer may not have had a TSB for most of the year or since the end of the previous year, or where the TSB has decreased during the year, due to market movements or other genuine reasons other than avoidance.

The accounting groups suggested the Commissioner of Taxation should have discretion to have assessable contributions permanently excluded as taxable concessional contributions or allocated to one or more other financial years.