How a single SMSF could be on the hook for a $30m Div 296 bill

Earlier this week, The Australian Financial Review noted that WiseTech director Charles Gibbon’s December 2024 sale of 1.53 million shares in the $33 billion software firm was actually executed through the trustee for his self-managed super fund.

Fabemu No. 2 Pty Ltd acts as the trustee for the Gibbon Superannuation Fund, which based on its remaining holding of WiseTech shares, could be the largest SMSF in the country.

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When Fabemu No. 2 sold the shares on 5 December, it was to the tune of around $200 million. As the assets were held within super, the capital gains on the sale were likely 10 per cent, which is considerably lower than the bill would have been had Gibbon held the shares outside of super.

But it’s the volume of shares still held in the SMSF that is most notable, with a change of director’s interest notice following the sale disclosing that Fabemu No. 2 owns 15,594,630 more shares.

As at close of trading on Thursday afternoon, with the stock sitting at $108.77, this is valued at around $1.69 billion.

While the ATO hasn’t disclosed exact values for the largest SMSFs, it has previously detailed that the average for the top 10 was $423 million.

Even among the extreme end of the spectrum, Gibbon is an outlier. And that’s before taking any non-WiseTech holdings into account.

So, would he be on the hook for if the Division 296 tax were already in place and applied to just the value of Gibbon’s WiseTech SMSF holding?

Using the SMSF Alliance calculator for the tax as it is currently proposed, if the share price ended in the same spot at close on 30 June, the Division 296 bill would be a little over $31 million.

Ouch.

This is based on no contributions or withdrawals being made and a starting balance of $1.48 billion – which is the value of the same amount of WiseTech shares at 1 July 2024.

Now, is this definitively what the tax hit would be? Absolutely not. It’s just a range based on publicly available information that takes no other circumstances into account.

But it is an example of the kind of superannuation holdings that the government has made abundantly clear it doesn’t support.

There’s no credible case that anyone with more than a billion dollars in their super should have access to the same level of tax concessions as someone with even an above average balance. At that point, it quite clearly has nothing to do with saving for retirement.

Whether it leads to Gibbon ever paying the tax or it simply prompts him to move it into a different structure, this is the kind of wealth hoarding within super the Treasurer is aiming to curb.

What impact does the tax actually have on other large balances?

One of the major misconceptions around the proposed $3 million super tax is what portion of the balance above the threshold is impacted.

It isn’t the entire increase in total super balance (TSB) that is taxed at the additional 15 per cent rate, only the earnings – yes, including unrealised gains – that are attributable to the balance above $3 million.

Before the tax is calculated, the percentage of growth that is taxable needs to be determined, which at a high level is a fairly simple formula: (TSB at end of FY) – $3 million (large balance threshold) ÷ (TSB at end of FY).

Earnings for Division 296 purposes is calculated as TSB at end of the financial year minus the greater of TSB at start of the financial year or $3 million.

This also needs to be adjusted by removing after tax contributions and adding back withdrawals, including pension payments.

Then, the actual tax is 15 per cent of earnings x taxable portion.

Assuming no after-tax contributions or withdrawals for the sake of simplicity in this example, a super balance that moved from $3 million (or indeed any amount below $3 million) up to $3,250,000, only 7.69 per cent of the growth is actually taxable.

That equates to earnings of $19,225 actually subject to the 15 per cent tax, ultimately putting the bill at just $2,883.75.

The taxation of unrealised gains is fundamentally bad policy, but the arguments against it should avoid overstating the actual impact on the vast majority of funds that are going to be hit with a bill.