IFPA urges government to amend Division 296 legislation

The Institute of Financial Professionals Australia (IFPA) has urged the government to make seven key amendments to the proposed Division 296 tax on superannuation balances above $3 million.

The IFPA said the Division 296 tax must not be legislated in its current form as other solutions exist to ensure a fairer and equitable superannuation system for all Australians.

The seven amendments the IFPA recommended included the removal of unrealised capital gains from the calculation of earnings and the use of actual taxable income/earnings as a measure of earnings. It also recommended to not use carry forward losses, but instead refund the tax members had paid to offset any current tax liability.

Additionally, the IFPA said the government should introduce a permanent tax deferral regime for all funds, not just defined benefit funds and suggested the $3 million threshold must be indexed. Furthermore, it recommended the exclusion of certain amounts from a member’s adjusted TSB permanently to ensure a fairer proportion of earnings is achieved on a member’s TSB.

Finally, the IFPA recommended the government allow members to remove the excess if they have not met a condition of release and urged for the undertaking of a holistic review of the superannuation system.

Natasha Panagis, IFPA head of superannuation and financial services, said it is extremely disappointing that the Division 296 legislation remains largely unchanged from when it was first announced in early 2023 despite the level of consultation that has occurred in the industry.  

“There is nothing equitable or fair about taxing individuals on unrealised gains from assets that they have not sold. It is one thing to increase taxes on large member balances but choosing a method that is fundamentally flawed and a first for the Australian tax system is not the right solution,” she said.

“IFPA appreciates that the superannuation system must be sustainable, however if the policy intent is to reduce the tax concessions afforded to members with large balances, other options must be considered by the government to fix the Division 296 tax measure.”

Panagis said rather than applying another “piecemeal change” to the superannuation system, the IFPA proposes the government conduct a “holistic review of the superannuation tax concessions so we end up with a system that is fair and equitable for everyone”.

“After all, continual changes to superannuation not only targets retirement savings but promotes instability and uncertainty in the sector, which in turn may discourage investment,” she said.