iscover Division 296 ‘blind spot’ may cost unprepared SMSFs
TaxA significant but largely overlooked reporting feature of Division 296 could impose substantial compliance costs and lead to adverse tax outcomes for SMSFs caught unawares, a leading auditor has warned.
From 1 July, Division 296 – also known as the $3 million super tax – will impose an additional tax on individuals with super balances that exceed that amount, and impose higher rates for balances over $10 million.
While most practitioners are aware of the change, many have yet to consider whether their portfolio reporting systems are equipped to track pre- and post-reset gains separately, according to Aquila Super.
Most of the auditor’s concerns are with SMSFs that hold investments through portfolio administration services, which are increasingly held by higher-balance funds seeking to reduce administration costs while maintaining diversified investments.
“The reality is that many portfolio providers have either not considered tracking this Division 296 reset date or have chosen not to do so due to cost, effectively shifting the burden to accountants,” Aquila Super’s technical partner, Chris Levy, said.
Aquila Super has urged trustees and advisers to review reporting arrangements now to assess if action is required before 30 June.
If they fail to introduce additional functionality, accountants and SMSF advisers may be forced to rely on existing portfolio reports, risking their clients incurring higher Division 296 tax liabilities.
The other option is to restructure historical investment records to calculate adjusted cost bases and future gains.
This could mean unravelling years of transaction histories, dividend investment plans, deferred tax adjustments, and multiple acquisition parcels, which would create a substantial administrative burden and materially increase ongoing compliance costs.
A lack of prior information may make this “practically impossible,” Levy said.
“The concern is not simply additional administration – it is that trustees could ultimately pay more tax than necessary because the historic information required to properly apply the reset isn’t readily available.”
A similar challenge arose with the 2017 superannuation reforms, when portfolio providers introduced additional reporting functionality to accommodate revised CGT treatment.
“The technology solution is achievable,” Levy said. “The real question is whether providers are prioritising it and whether trustees and advisers are asking the right questions.
“If some providers support Division 296 reporting and others do not, reporting capability may become an increasingly important factor in platform selection decisions.”
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