Division 296 tax: Bill now in Parliament
The Treasury Laws Amendment (Division 296 Tax on Superannuation Balances) Bill has now been introduced into Parliament and, if passed, will apply from 1 July 2026. The key design features are:
- an extra 15% on “Division 296 earnings” attributable to balances between $3m and $10m (30% total) and an extra 25% on the portion above $10m (40% total), with both thresholds indexed in line with the transfer balance cap.
- The regime applies at the individual level, to realised earnings only, with specific rules for contributions and withdrawals and an optional CGT cost‑base reset for certain assets held at 30 June 2026.
The mechanics of the Bill are largely unchanged from expectation and our views have been provided in previous newsletters. We await to see if it passes through Parliament in the current form.
Departure Prohibition Orders
The ATO has publicly confirmed that it is actively using Departure Prohibition Orders (DPOs) as part of its debt enforcement program. Since mid‑2025, DPOs have been issued to stop taxpayers with significant tax debts from leaving Australia until satisfactory arrangements are in place, alongside an uptick in director penalty notices, garnishees and other “full toolkit” enforcement activity.
Taxpayers with material tax debts can and are being physically prevented from travelling overseas. Any client with mounting liabilities and overseas travel plans should be advised to engage with the ATO, look to put a payment plan in place (if necessary) and avoid simply “going quiet”. Once a DPO is issued, options become narrower and more urgent.
AI leading to significant tax penalties
There have now been two recent tax cases where taxpayers have used AI to cite cases and principles that simply do not exist (Smith and Commissioner of Taxation ARTA 25 and RYJZ and Csr of Taxation).
AI is a drafting aid, not a substitute for proper research or professional judgment. Use of AI does not provide a defence to penalties: it does not show reasonable care. Taxpayers found blindly relying on AI should expect tax penalties of at least 50% of shortfall amounts.
Be careful how you engage with the ATO
A recent Tribunal matter (RRKC and Commissioner of Taxation) illustrates how comments in an ATO review or audit can later be used to support penalties. The taxpayer’s own explanations and characterisations of their behaviour during the audit were relied on at hearing to support a finding of recklessness and to uphold substantial shortfall penalties.
Clients often treat informal ATO queries or interviews as low‑risk “conversations”. They are not. Anything said in a review or audit can later be used against the taxpayer and can be very difficult to “unwind”. The taxpayer’s narrative and line of argument should be established early (i.e., as soon as the ATO engages on the matter) and remain consistent throughout the entire ATO engagement. We have seen countless examples of review responses making audit discussions far more difficult.
CGT reform firmly on the radar
The Government is looking into the 50% CGT discount. Whilst they have not committed to reform, it appears they remain very open to the idea of reforming the concession, which would likely occur at the May 2026 Federal Budget.
The discount is under sustained political and policy pressure. We think the Government is making all the noises consistent with a looming change and the public is being conditioned for a change in the Budget in a way that avoids surprises. It remains to be seen what the mechanics of the change could be, including whether the 50% discount will be grandfathered for existing assets (and if so, how). The small business CGT concessions could become more valuable (again) if the CGT discount is reformed.
Politics and the 47% marginal rate: watch the narrative
Angus Taylor and Tim Wilson (newly appointed Federal Opposition leader and Treasurer respectively) are publicly taking aim at the top personal tax rate of 47% (including the Medicare Levy).
For now this is politics, not law, but remains an interesting development for a view that has been long maintained by our firm.
