One of the major changes incorporated into the latest version of Div 296 is its application to death benefits. The previous version exempted deceased members but that exemption has been removed. What was the reason for this and what are the chances of getting it reinstated?

When tax was to be levied on unrealised gains it was levied incrementally, so the eventual sale of the asset was irrelevant. Now that the basis is realised gains, the tax will be levied only when the asset is sold. This has swapped a gradual, ongoing tax impost, when the liquidity to pay the tax would be problematic, to a one-off calculation on disposal, when liquidity would generally be available. If the death benefit exemption was retained there would be scenarios where the tax was avoided entirely by simply retaining the asset for the lifetime of the member.

The application of Div 296 to deceased members will introduce an additional consideration for Executors, given that Div 296 is a tax on the individual, not the fund. It is conceivable that a liability could arise against the Estate after it has been distributed, thereby placing an Executor in a difficult position. It is also conceivable that superannuation trustees may make a payment, on the death of a large balance member, directly to a beneficiary who is not a beneficiary under the Will. The Div 296 tax liability would be applied against the Estate to the detriment of the beneficiaries under the Will. I’m sure there are other scenarios. In essence, the adoption of this change will require, as a minimum, a reconsideration of many estate plans.

Treasury is as sensitive to any scenario that could reduce their revenue as they are insensitive to unintended consequences that don’t affect them so I see no chance that they will bring back the exemption. It’s not law yet so let’s see what happens!