Revised Div 296 bill passes lower house

The government made substantial changes to the operation of its proposed $3 million super tax after failing to pass the measure through Parliament previously.

The revised bill still reduces the tax concessions available to individuals with total superannuation balances exceeding the $3 million threshold, but also introduces a new $10 million threshold, which further reduces concessions for earnings on balances above this level.

Once legislated, superannuation balances between the $3 million threshold and the $10 million threshold will be hit with an additional 15 per cent tax on earnings based on the percentage of the total superannuation balance exceeding the $3 million threshold.

Where a member has a balance exceeding $10 million, a further 10 per cent tax on earnings will be applied based on the percentage of the TSB exceeding the $10 million threshold.

Superannuation funds will be required to calculate the amount of their Division 296 fund earnings attributable to an individual member and report that amount to the ATO.

The government has addressed some of the more controversial elements of its previous bill in the new legislation, such as the taxation of unrealised capital gains and the absence of any indexation for the thresholds. The new version of the bill contains a different calculation for Division 296 earnings, and both thresholds will be indexed to inflation.

Despite some of the improvements to the bill, industry associations and tax professionals still have concerns about certain aspects of the legislation.

The Tax Institute warned that the Division 296 tax bill was still "riddled with potential issues" such as how it would apply to deceased estates.

Julia Abdalla, tax counsel at The Tax Institute, noted that the new tax would apply to members who have passed away with the exception of the first year, creating great uncertainty for trustees of deceased estates.

"There is also no transitional CGT relief for taxpayers who cross the $3 million threshold in the future, so capital gains accrued when a member was below the threshold will be taxed at the full amount if they cross the threshold," she said.

"Most concerningly, it is unclear what review or appeal rights members will have if they disagree with a Div 296 assessment or a superannuation fund makes a mistake."

During the debate on the bill, Independent member for Wentworth, Allegra Spender, and Liberal Party member Terry Young both put forward potential amendments for the bill.

Spender proposed an amendment that would allow younger super members impacted by the new tax to be able to make a one-off withdrawal from their account.

The Liberal Party called for existing superannuation balances to be grandfathered from the tax changes. Both proposed amendments were voted down.

Labor MP Libby Coker said the reforms would maintain the concessional treatment of super but ensure it is provided more equitably and sustainably.

"Our superannuation system provides concessional tax treatment because super has a clear objective: to provide income for a secure retirement," Coker said.

"This government legislated that objective. Concessional tax treatment is justified because it encourages long-term savings for retirement. Importantly, these changes ensure that tax concessions are better targeted and more sustainable."