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Treasury has released draft regulations outlining the calculation of the Division 296 tax for defined benefit interests.
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Government unveils details of Division 296 tax for defined benefit interests
18 March 2024
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The government has released draft regulations for consultation which outline methods for valuing defined benefit interests under the Division 296 tax measure.
The proposed Division 296 tax reduces the concessional tax rates that apply to superannuation earnings on balances above $3 million and will apply from 1 July 2025 if legislated.
The draft regulations also make modifications to the Division 296 earnings formula to capture notional contributions to defined benefit interests.
“The draft regulations also update existing methods to calculate notional contributions for defined benefit interests to reflect up‑to‑date economic parameters,” Treasury said.
“These methods have not been updated for many years and do not reflect the current social and economic climate.”
Schedule 1 of the of the regulations contains modifications to ensure that defined benefits contributions, which are a notional amount, are counted towards a persons’ adjusted total super balance (TSB) for the purpose of Division 296.
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“For accruing members, the actual employer contributions (if any) are disregarded to ensure that there is no double counting of amounts that represent employer contributions,” the EM for the regulations stated.
The Regulations also prescribe rules for valuing defined benefit interests and certain other retirement phase interests.
“These modified rules are necessary where the withdrawal benefit value, set out in Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures), is inappropriate to value the interest,” the EM said.
“The withdrawal benefit value may be nil or may not fully reflect all potential benefits or in some cases, overstate them.”
The EM noted that if these values were used in the formula contained in section 296-35 of the amending bill, they would understate or overstate earnings for some individuals which would allow some individuals to avoid any tax being imposed.
The draft regulations also make adjustments to TSB values for defined benefit interests subject to a family law payment split, where that interest is not able to be split between the member spouse and non-member spouse at the time of the order or agreement.
Treasury is welcoming feedback on the draft legislation until 26 April 2024.
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