UBCNews - Business - Superannuation Changes: What Does It Mean For High-Net-Worth Individuals?

Episode Date: November 18, 2025

So, if you've got more than three million dollars sitting in your superannuation, the Division 296 tax changes are probably keeping you up at night. And honestly? They should be on your radar. Approved Financial Planners Pty Ltd City: Floreat Address: 7/437 Cambridge St, Website: https://approvedfp.com.au

So if you've got more than $3 million sitting in your superannuation, the Division 296 tax changes are probably keeping you up at night. And honestly, they should be on your radar. Absolutely. And you know, the good news is that the government has actually listened to feedback. The most controversial parts have been revised. We're no longer looking at taxes on unrealized capital gains, which was a huge sticking point.

Right. That was the part that had everyone worried. Have you ever wondered how many people actually sit around calculating their total superbalance at dinner parties? Huh, probably more than you'd think, at least in certain locations. But let me walk you through what Division 296 actually is now, after these updates. Please do. Sure. Division 296 is a proposed additional tax on superannuation earnings for individuals whose total superbalance exceeds $3 million.

The start date has been pushed back to July 1st, 2026. The first time your balance will be measured is June 30th, 2027, and the first tax assessments won't actually be issued until the 2027 to 28 financial year. The big change? It only applies to realized earnings now, things like interest, dividends, rent, and realized capital gains, not paper profits. That's a significant shift. And I've heard there are actually two thresholds now, not just one?

Exactly. For balances between $3 million and $10 million, there's an additional 15% tax on realized earnings above that threshold, bringing the total tax to 30%. For the portion of your balance exceeding $10 million, there's an extra 25% tax on those earnings, taking the total rate to 40%. Wow. So for someone with, say, $20 million in Suven. super, that 40% rate really bites into returns. It does. But here's something important.

Both the 3 million and 10 million thresholds will be indexed to inflation. They'll increase in jumps of $150,000 for the lower threshold and $500,000 for the higher one. That addresses another major criticism of the original proposal. Mm-hmm. I see. How many Australians are we actually talking about here? The government estimates around 90,000 superbalances will be affected by the 3 million threshold, and approximately 8,000 balances will hit that 10 million mark. So a relatively small group, but with significant wealth at stake. That point about index thresholds sets up our next piece,

how these inflation adjustments protect future retirees. But first, a quick word from our sponsor. With over 20 years of experience, approved financial. planners has been guiding Western Australians through complex retirement and superannuation decisions. Their team specializes in helping individuals over 45 and those approaching retirement work through changes like Division 296 with personalized strategies. Whether it's retirement planning, superannuation management, or investment strategies, they focus on preserving what you've worked hard to build. Learn more at approvedfp.com.com.aU. Picking up on index

thresholds, how do these inflation adjustments actually change the long-term impact for high net worth individuals? Well, it means fewer people get dragged into the tax net over time just because of inflation. Without indexation, in 20 years, 3 million might not represent high wealth anymore. The adjustments keep the policy targeted at genuinely large balances. That makes sense. Now, what about timing? How should someone actually plan around when they sell assets or take gains. Timing becomes really important. Since the tax only applies to realized gains, you want to be strategic about when you dispose

of investments. If you can manage the timing, say, spreading sales across financial years or waiting until your balance drops below a threshold, you might reduce your Division 296 liability. I actually had a client last year who was planning to sell an investment property inside their SMSF. Once we modeled the Division 296 impact, we restructured the timing completely. Right, exactly. And what about contribution strategies?

Should people still be putting money into Super if they're already over $3 million? It depends on your overall situation. You need to review whether Super is still the most tax-effective vehicle for you. Remember, even with Division 296, Super might still offer better after-tax returns than investing personally at 45%. plus Medicare levy or through a company at 30%. It requires financial modeling to compare. So it's not a simple yes or no answer. What about withdrawing funds to get below these thresholds?

Does that make sense? Only if you meet a condition of release, and this is critical, you need to consider where that money goes. Once it's out of super, you might not be able to get it back in. Plus, you'd be investing in an environment that could be taxed at up to 45%. For many people, even with the Division 296 tax, Super is still more attractive.

In other words, Super remains a strong option despite these changes. It's about comparing your alternatives. I see what you mean. What other strategies should high net worth individuals consider? Well, there are a few different approaches. Spouse contribution splitting can be effective if your partner has a lower balance.

You might also look at diversifying through family trusts or other structures, but that needs careful planning. And here's something people often overlook. Make sure your fund has sufficient liquidity to actually pay the Division 296 tax when it's due. That's a practical point. If all your assets are tied up in property or unlisted investments, you could have a real problem. Definitely.

That's especially true for self-managed super funds with a single illiquid asset. You might be forced to sell at a bad time just to cover the tax bill. And don't forget, selling assets can trigger capital gains tax and transaction costs, which need to factor into your decision. So there's this cascade of tax implications to consider. Here's what I'm wondering. When should someone actually start planning for this? The start date is still more than a year away.

I'd say start now, but don't make any major moves yet. The draft legislation hasn't been released, and we're still waiting on the consultation period. The final details could differ from what's been announced. But you should be having conversations with your financial advisor and tax specialist to understand how it might apply to your situation. And what about estate planning? If someone's using super as part of their wealth transfer strategy, does Division 296 change that calculation? It can. There's no formal inheritance tax in Australia, but adult children inheriting super may face

taxes on the taxable component of those death benefits. The rate can be up to 17% including Medicare levy, though in some circumstances it could reach 32%. So you're potentially facing Division 296 tax during your lifetime? Then death benefit taxes when it passes to your kids. Your estate plan needs to account for both. That's a double hit. For everyone listening with significant superbalances, what's the one thing they should prioritize right now? Get your total superbalance calculated accurately across all your accounts.

Know where you stand relative to those 3 million and 10 million thresholds. Then speak to professionals who can model different scenarios for you. Every situation is unique. What works for one person might be completely wrong for another. And I'd imagine the complexity increases if you're managing a self-managed super fund with multiple members. Oh, absolutely. The government's still consulting on how to fairly attribute realized earnings to individual members in pooled funds. For SMSFs, you'll need to track each member's proportion of realized earnings carefully. It adds another layer of record keeping and compliance.

Right, that's key. So to everyone listening, if you're anywhere near these thresholds, This is definitely not a DIY situation. The interplay between Division 296, regular super taxes, contribution caps, and estate planning. It's complex stuff that needs expert guidance from firms like approved financial planners. And with the legislation still being finalized, staying informed as these rules develop is going to be important for protecting the wealth you've worked so hard to build. Couldn't have said it better. The key is being proactive rather than...

reactive. In fact, I'd say being proactive instead of waiting until the last minute can save you thousands in unnecessary tax. Start the conversation now, even if you don't take action until the legislation passes.