‘Doesn’t make sense’: Div 296 unavoidable following Labor landslide

When it comes to Division 296, which will see superannuation balances over $3 million hit with a 30 per cent tax, up from 15 per cent, the biggest point of contention lies with the proposed taxation of unrealised capital gains.

Despite ongoing arguments against the Division 296 from the opposition, now that Labor has secured a second term, Marshan Consulting director Ben Marshan said it seems inevitable that it will come to fruition.

While the Liberal Party has been openly against the legislation, now that Labor has secured a somewhat surprising landslide win, Marshan expects that it will likely go ahead in its current form even though it is “not logical”.

“It’s going to just be a totally different way that anything is taxed in this country and you know, maybe it’s a test and a foreboding for what other policies might happen at some point in the future,” Marshan said on The ifa Show.

“On the other hand, it may end up being so difficult to administer for the ATO in the way that’s being proposed that it’s just unworkable and they’ll have to walk it back.

“It’s creating a totally different tax calculation for the whole tax system. And you know, again, auditors will have to do things differently, accountants will have to do things differently. Anyone running a superannuation fund is going to have to calculate tax differently on this in this situation.”

Marshan further argued that, although this may not impact that many people now, growing super balances and the lack of indexation proposed mean that this could actually end up affecting a lot of Australians in the future.

“It just doesn’t make sense from that logical perspective but that doesn’t mean that’s not what we’re going to end up with because often, these things aren’t logical,” he said.

Looking specifically at the taxation of capitalised gains, Marshan theorised that this decision may be an attempt to reduce the number of properties being held in self-managed super funds (SMSF), creating an influx of property to the struggling housing market.

“The only little thing I’ve got in the back of my head going, maybe they think this will encourage people not to hold as much property in their self-managed super fund because it is going to be such a pain in the arse to get valuations year on year,” he said.

“It’s going to cost a lot. It’s going to be annoying and difficult. Maybe they’ll sell some of them and that’ll free up in the market.

“But there’ll be a lot of in-species transfers, you’d imagine, before that actually happens, so, I’m not sure it solves that either.”

Even so, he said that this “feels like a tax grab” that may negatively impact already struggling Australians.

“Ultimately, the most likely people to have assets over $3 million in reality are probably not the ones that they think they’re targeting and affecting,” he said.

“It’s going to be small business owners with their real business, with their trading property that’s sitting in it, and that primarily targets farmers.

“That doesn’t feel like the right motivation to be attacking farmers at this point with everything else that goes on in rural Australia.”

Shortly after the election results were released, Smarter SMSF chief executive Aaron Dunn noted that the Greens, whom Labor will have to work with in order to get legislation through the Senate, actually wanted to lower the threshold to $2 million, expanding the impact of this considerably.

“The government wasn’t interested in talking about the concerns [raised about the tax historically], and even off the back of its campaign it still says it will only affect 0.5 per cent of the Australian population, rather than looking at all the other aspects of the bill,” Dunn said at the time.

Although it is hard to believe that this would actually occur, according to Dunn, Labor will likely have to negotiate with the Greens in order to get Division 296 over the line which could see other legislation pushed through as a trade-off.

With the tax revenue that would come from Division 296 already integrated into Labor’s budget, Dunn agreed that it is simply a matter of when the legislation is passed, noting that they will likely want to get it through as soon as possible.

Reflecting on the recent election, Marshan speculated that, because Labor was able to secure considerably more seats than anticipated, they may also dig up previously abandoned policies to push through while they have the power to do so.

“I think that there is a reality that for much of the lead-up to the election and much of the election, there was a feeling that it was going to be closer to a low majority or hung Parliament than what it’s ended up being,” he added.

“I think, given we’re not there, they’re going to have a mandate to do more than what they went to the election with in reality. Around financial services in particular you start to go, there’s not necessarily a lot on their dance card from what they had proposed during their first term, what they took to the election.

“So, where are they going to find more to do? There are policies that they have abandoned over time or moderated over time that might start to creep back in.”

To hear more from Ben Marshan, tune in here.