Division 296 Tax: What Proposed Changes Could Mean for Super Funds and Property Investors

The proposed Division 296 tax changes to superannuation funds represent one of the most significant discussion points in our industry at present. At the time of writing, the two bills that would create Division 296 aren’t listed for introduction in the current parliament, as the government has paused to review key components of the tax. Recent comments by ministers suggest, however, that they will be implemented in some form, although uncertainty remains regarding the timing and final structure of the legislation.

As it stands today, the proposed legislation would introduce an additional 15 per cent levy on superannuation earnings where total balances exceed $3 million, effectively doubling the tax rate on the excess portion to 30 per cent. What makes these potential changes particularly complex right now is the inclusion of unrealised capital gains in the tax calculation. Under the present proposal, property investors using SMSFs would face tax bills on paper profits they haven’t actually received. Given property’s illiquid nature, trustees may encounter cash flow pressures that could force asset sales purely to meet tax obligations.

This legislation, in its currently proposed form, may also trigger a material shift in how funds approach real estate investment. If the $3 million threshold remains static and is not indexed to inflation, more funds will inevitably be captured over time as property values continue to appreciate. In addition, if the valuation of assets in a fund falls back below the $3 million cap, then it may be entitled to carry forward a transferable negative superannuation earning into the next financial year.

Changes like these demonstrate how vigilant, robust property valuations remain a crucial component of any investment portfolio. Superannuation fund trustees need to ensure their asset values accurately reflect current market conditions through professional valuation processes that adopt the rigorous disciplines and standards used by Australian Property Institute members. Obtaining up-to-date assessments from qualified professionals like Herron Todd White remains essential for effective management and tax compliance.

In other news, the RBA’s recent decision to cut the cash rate by 25 basis points to 3.60 per cent has provided some relief for borrowers. Increased borrowing capacity from lower interest rates is improving market conditions, though affordability remains challenging due to limited housing supply. The fundamentals of supply and demand continue to be key talking points, with ongoing high construction costs and longer build times creating significant roadblocks to quickly boosting housing supply.

These construction cost pressures not only impact new housing supply but also affect the viability of completing renovations and extensions to existing homes. This month, our residential teams examine the renovation market dynamics across their service areas. Meanwhile, our commercial specialists focus on entry-level retail properties suitable for investors and owner-occupiers. Finally, our rural team delivers coverage about various industries, examining how seasonal conditions and commodity prices continue shaping property market performance.

Whether navigating new SMSF tax obligations, considering residential renovation opportunities, or evaluating commercial investments, the complexity of current market dynamics makes independent professional advice more valuable than ever. Our teams’ insights demonstrate why thorough market knowledge and professional valuation services remain the cornerstone of successful property investment decisions.

Gary Brinkworth
CEO