Tax planning shouldn’t be the driver of investment strategy

Commercial decisions should come first, and tax planning should support — not drive — investment strategy in preparation for the Division 296 tax, said a legal specialist.

Phil Broderick, principal at Sladen Legal, told delegates at the SMSF Adviser national conference that Div 296 is now a tax on a member’s share of super fund taxable income (for balances over $3 million), mainly based on realised income.

He said planning opportunities exist around timing asset sales, managing balance thresholds, using companies strategically, and income deferral, but emphasised that the core principle is that tax should not drive investment decisions, rather the focus should be on sound commercial strategy.

“In essence, when we’re talking about, to what does Div 296 now apply, it effectively applies to the member’s share of the SMSFs taxable income, but ignoring things like taxable contributions,” he said.

“Exempt current pension income is added back in, non-arm’s length income is out because we’re already paying top marginal tax rate. We’re just looking at what’s our share of the taxable income of the super fund.”

Broderick said that although the new draft of the legislation does prevent the taxing of unrealised gains, there will still be some notional income that will be taxed under this regime such as deemed capital gains.

“But the one big one is where we take out an in-specie lump sum benefit that will trigger a deemed capital gain for the super fund’s taxable income purposes, which again, will flow down into our member being the share of that deemed capital gain,” he said.

“That will also include other things that are notional amounts like franking credits which are included in the assessable income of the super fund and again flow down. Additionally, foreign exchange gains to the extent that they are taxable to the super fund. One of the disappointing elements of this is that you will potentially pay Div 296 even if your account balance through losses, through unrealised gains, other than realised losses, drops below $3 million.”

He added that one of the strategies to potentially reduce the tax is to defer gains and the realisation of assets.

“One of the good things about the new Div 296 is we only pay tax on the realised gains. So, if we don’t sell the asset, we’re not paying Div 296,” he said.

“That might be just kicking the can down the road, and of course you shouldn’t have the tax being the tail that wags the dog. You should make commercial decisions. But if there’s no reason to and you don’t particularly want to sell the asset, defer Div 296 until such time as you do decide to sell it.”

He continued that to be even more strategic in the process of reducing members’ benefits over time to go below $3 million, if in the year after the balance does drop below the threshold, you sell that asset in the following financial year, you have then got assessable income that does, in theory, flow down to the member

Another issue to consider is when a member dies and the ability to defer the sale of assets until the year after death.

“There is the potential of using companies outside of super funds, but it also has a potential advantage inside of super if it’s a reg 13.22c company or an unrelated company,” he said.

“The good thing about companies, from a Div 296 point of view, is when does a super fund derive income from a company? It’s when it pays a dividend. And you get to choose when you pay your dividend, so you can defer the Div 296 until such time as you decide to actually pay that dividend.

“Again, it might be deferred until you’re below $3 million, or it might be deferred until after the year after death, or you might do it on the basis that you make a big gain but frank out those dividends over a number of years.”

Broderick continued that modelling has shown the ability to transition these amounts over a number of years reduces Div 296 rather than getting it all in one go.

“That’s obviously in contrast to a unit trust. If we’ve got a unit trust, we make a big capital gain that flows down all at once, and we pay Div 296 in that year, whereas these companies will be able to defer it over a number of years if we wanted to,” he said.

He added that interest on an LRBA loan will also reduce taxable income, which in turn will reduce the Div 296 tax.

“Again, you should only be doing that if it’s a good idea, generally. But it does point towards maybe negative gearing and an SMSF in a Div 296 context,” he said.

Keeli Cambourne

March 2 2026

smsfadviser.com