With the Federal Government’s proposed Division 296 tax, which would introduce additional tax for individuals with super balances above $3 million and $10 million, many Australians are reassessing where they should hold and grow their wealth. While superannuation remains one of the most tax-effective investment structures, there may be other options worth considering, particularly for high-balance investors. Choosing the right structure can significantly impact long-term outcomes, asset protection and estate planning.
Superannuation
Super continues to offer low tax rates: typically, 15% on earnings in the accumulation phase and 0% in pension phase (up to transfer balance cap limits). Even with the proposed Division 296 adding extra tax for high balances, super remains attractive for most Australians as the tax rate applicable to investment earnings is still a lot lower than the top marginal tax rate of 45% that applies to individuals.
Pros: Low tax, strong long-term growth, protected environment.
Cons: Limited access until retirement; additional tax for high-balance members; contribution caps restrict how much can be added.
Family Trusts
Discretionary (family) trusts allow income from investments to be distributed to family members in a tax-efficient way each year. They are commonly used for businesses, investment portfolios and property.
Pros: Flexibility in distributing income; good asset protection; useful for managing tax across family groups.
Cons: Income must be distributed annually; adult children taxed at adult rates, but minors face penalty rates; compliance obligations are increasing.
Companies
Companies typically pay a tax rate of 25% or 30%, depending on whether operating a business or passive investment, which can be appealing for reinvesting profits. However, companies do not receive the 50% capital gains discount available to individuals and trusts.
Pros: Lower tax rate on retained earnings; strong asset protection.
Cons: Higher tax on capital gains; extracting profits can trigger additional tax.
Personal Ownership
Holding assets personally is simple but may expose wealth to higher tax rates and personal risk. Where capital gains are made on investments held for more than 12 months, a 50% capital gains discount is available to reduce the amount subject to tax by half.
Pros: Simple; 50% capital gains discount available.
Cons: Higher tax rates; personal risk.
So, what’s best?
There’s no “one size fits all” structure. The right approach often involves combining multiple structures, aligned with your personal and family circumstances, investment goals, and long-term tax planning strategy.
Contact us today to review your current position and financial plan to ensure your wealth is positioned for the best long-term outcomes – both before and after Division 296 comes into effect.