Div 296 regulations risk creating 'unworkable outcomes' for SMSFs, says SMSFA

The association said that the current design of the tax “turned long-established superannuation and estate administration principles on their head”.

Under the proposed regulations, superannuation earnings derived in subsequent years following the death of an in-scope member are included in the calculation of that member’s total superannuation earnings in the year of death.

In its submission on the regulations, the association explained that this effectively creates an open-ended attribution period, whereby earnings realised in future income years are attributed back to the deceased member’s year of death until death benefits are finalised.

SMSF Association chief executive Peter Burgess said this treatment of post-death earnings represents a material expansion of the regime that has not been subject to appropriate scrutiny. 

“By extending tax liabilities beyond death, you create a scenario where liabilities can arise years later, after an estate has been finalised, leaving executors and beneficiaries exposed without access to the underlying superannuation assets.” 

Burgess said the consequences are not just theoretical, but go to the heart of how the system operates. 

The association also warned that the proposed attribution rules risk producing arbitrary and unfair outcomes for SMSF members. 

“Members could be taxed on earnings they have never received – and may never receive,” Burgess said. 

“That includes situations where earnings are attributed from reserves or from periods where an individual was no longer even a member of the fund. 

“These are not marginal cases – they are real, foreseeable scenarios that undermine the integrity of the regime as a personal tax.” 

Burgess said the current design also fails to reflect how a genuine personal tax should operate. 

“As a personal tax, Division 296 earnings should reflect an individual’s net position across all their superannuation interests,” he said. 

“However, by effectively setting negative earnings to zero, the rules prevent losses from offsetting gains, resulting in overstated Division 296 earnings.” 

Burgess said the association’s recent discussion with Treasury was constructive, with a shared focus on ensuring the rules are workable in practice. 

“It is critical the design of this tax is practical, fair and aligned with how the superannuation system operates in the real world.”

“We will continue to work with Treasury and to push for workable and practical solutions.”