SMSFs continue to thrive despite Division 296 tax implications
SMSFs and the Division 296 Tax
The landscape for high-balance superannuation is changing. The proposed "Division 296" tax—which targets individuals with total super balances over $3 million—is set to have a significant impact, particularly on the Self-Managed Super Fund (SMSF) sector.
The Unexpected Burden
When the tax was first announced, Treasury predicted a certain level of revenue. However, recent benchmark reports suggest that the impact could be far greater. SMSFs alone could shoulder a tax burden of billions of dollars. For an affected member, the average tax liability could be upwards of $50,000.
The Liquidity Trap
The biggest concern for many of our Adelaide clients is liquidity. Many SMSFs hold direct property—often the business premises for a family-run company. Because Division 296 taxes "unrealized gains" (the increase in value on paper, even if you haven't sold the asset), a trustee might be hit with a massive tax bill without having the cash in the bank to pay it.
One in three SMSFs hold direct property, and about 7% of those affected by this tax are estimated to have insufficient liquid assets to cover the bill.
Are SMSFs Still Worth It?
If the goal of this tax was to discourage SMSFs, it isn't working. SMSFs are currently growing at their fastest pace in eight years. The average member balance is increasing, and trustees are simply adjusting their strategies.
We are seeing a shift where trustees are:
Preparing for liquidity by holding more Cash or ETFs.
Reviewing asset weights to ensure they don't exceed the $3m cap unnecessarily.
Considering alternative structures for holding long-term property.
Now is the time to review your balance and your asset mix to ensure you aren't caught in a liquidity trap.
If you are interested in learning more, give us a call on 08 7477 8252. Our Adelaide based advice team can help you create a long-term portfolio, to generate both growth and income for your future.
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