Critical Updates for Advisers and Clients
The Big Picture: The government proposes to commence the first taxable period on 1 July 2025 for additional tax on earnings of super balances above $3 million, starting from the 2026 financial year.
What This Means:
- The government has proposed increasing the concessional tax rate on future earnings for super balances above $3 million from 15% to 30%
- Based on commentary from the Albanese government post election, it is likely the government will re-introduce legislation to give effect to the div 296 tax
- There might be as many as 49,000-50,000 SMSF members in Australia that will be impacted by the changes
Key Concerns for SMSFs:
- This will force Australians to pay annual taxes on asset values regardless of whether they ever sell or profit
- The government’s proposal gives taxpayers 84 days to pay the tax liability instead of the usual 21 days, but this hardly mitigates the risk that SMSF trustees may have to liquidate the main asset in their fund
Action Required:
- Review client portfolios with balances approaching or exceeding $3 million
- Consider asset liquidity and cash flow planning
- Prepare for potential legislation passage despite current uncertainty
2025 Tax Season Compliance Checklist
Critical Deadlines:
- 28 February 2025 for SMSFs who are tax agent clients, unless they were advised of a 31 October 2024 due date at finalisation of a review
- Lodging the SAR is the most important compliance obligation to be satisfied by trustees, even if the Fund hasn’t had any activity or has no tax liability
ATO Focus Areas for 2025:
- The ATO has issued guidance on what it will focus on regarding auditor compliance for 2025
- Enhanced scrutiny on overdue SMSF Annual Returns (SAR)
- Increased compliance reviews for funds with asset valuation issues
Essential Tasks:
- Annual Return Lodgment: Ensure all SARs are lodged by required deadlines
- Asset Valuations: Check the trustees have valued all fund assets at market value when preparing the accounts and statements for the fund each income year
- Audit Completion: Finalise SMSF audits before lodgment deadlines
- Documentation Review: Ensure all investment decisions and transactions are properly documented
Trust Deed Updates – Critical Review Required
Why Update Now:
- Generally, a SMSF trust deed should be updated every 3-4 years to ensure that it is complying with all legislative requirements
- Failing to keep your SMSF deed up to date can lead to the SMSF failing to optimise tax and contribution concessions, unnecessarily restricting investment opportunities, and can result in funds being unable to function appropriately if a member loses capacity or dies
Key Areas for Review:
- Capacity and Death Provisions: Ensure adequate guardianship clauses
- Overseas Residency: Power of Attorney provisions for members living overseas for more than 2 years
- Pension Flexibility: Ability to resettle pensions with flexible timing
- Investment Powers: Ensure deed permits current and planned investment strategies
- Contribution Strategies: Alignment with current concessional and non-concessional limits
Best Practice Recommendations:
- Specify guardians for incapacity and death, identify the Power of Attorney when living overseas for more than 2 years, and resettle pensions with flexible timing without mingling with accumulation account
- Review corporate vs individual trustee structures
- Ensure deed compatibility with binding death benefit nominations
Strategic Planning Tips for 2025-26
High-Balance Members:
- Consider contribution timing strategies before potential Division 296 implementation
- Review asset allocation for liquidity requirements
- Explore pension phase strategies to manage total superannuation balance
General Compliance:
- Implement robust record-keeping systems
- Schedule regular trustee meetings and document decisions
- Review investment strategy annually and document any changes
- Ensure separation of duties between trustees and professional service providers
Risk Management:
- Review insurance arrangements within and outside the SMSF
- Consider estate planning implications of trust deed provisions
- Evaluate cyber security measures for digital assets and records
Market Considerations
Asset Valuation Focus:
- Prepare for increased ATO scrutiny on market valuations
- Consider quarterly valuations for illiquid assets
- Document valuation methodologies clearly
Investment Strategy Reviews:
- Assess liquidity requirements in light of potential Division 296 tax obligations
- Review diversification strategies for high-balance funds
- Consider impact of unrealised gains tax on investment decision-making
What’s Next
Legislative Watch:
- Monitor Division 296 legislation progress through Parliament
- Stay updated on implementation guidance from ATO
- Prepare clients for potential retrospective elements
Immediate Actions:
- Schedule trust deed reviews for all funds not updated in the past 3-4 years
- Assess client portfolios for Division 296 impact
- Update investment strategies and documentation
- Complete 2025 tax season compliance requirements
Professional Development:
- Stay informed through industry updates and ATO guidance
- Consider additional training on Division 296 implications
- Review client communication strategies for complex changes
Contact Information
For urgent matters regarding Division 296 planning or trust deed updates, contact your adviser immediately. The window for proactive planning is narrowing as we approach the proposed implementation date.
This newsletter is for general information only and does not constitute financial advice. Always consult with qualified professionals for specific situations.
Next Issue: August 2025 – Focus on Division 296 implementation updates and year-end planning strategies.