Following the May 2025 federal election, the Government has announced that it intends to re-introduce a Bill to legislate its proposed Division 296 “$3m super tax” changes. The proposed Bill applies an additional 15% tax on superannuation earnings that correspond to an individual’s total superannuation balance above $3 million from the 2025 / 2026 financial year. This tax would be known as ‘Division 296 tax’.
The Treasurer has stated previously that a Division 296 tax would impact around 80,000 individuals, or around 0.5% of the Australian population. Whilst this number doesn’t sound like much, the proposed lack of indexation (at least initially) of the $3 million cap suggests more people will be impacted in the years ahead.
The first sitting day of the new parliament is scheduled to occur on Tuesday 22 July 2025 and it is likely that this Bill could be legislated to commence in the 2025 / 2026 financial year, taking into account balances from 30 June 2025. If this occurs, those estimated 80,000 individuals which this new tax may impact could already fall under the new legislation without being able to prepare for it. However, making decisions on superannuation balances over $3 million on possible proposed legislation can be very risky and may cause more tax implications to an individual than the actual Bill itself.
Should a Division 296 tax Bill be legislated, everyone that may be affected by this new tax may benefit from seeking professional advice to assess their situations. Whether money is maintained in the superannuation environment or partially withdrawn, will need to be considered carefully. If money is withdrawn from the tax effective superannuation environment, what can be done with the proceeds to help minimize the tax paid by an individual on their investments?
Investment Bonds as an alternative
While this may only affect around 80,000 Australians initially, many clients – especially those in the Gen X and Millennial cohorts expecting future inheritance – may be starting to question whether superannuation is still the most tax-efficient way to build wealth over the long term.
As a result, attention is turning to investment bonds as a potential alternative or complement to superannuation. Investment bonds, also known as insurance bonds, offer tax-paid investment structures, where earnings are taxed internally at a maximum of 30%. If held for more than 10 years, withdrawals are generally tax-free, making them an attractive option for clients looking to save outside of the superannuation environment without the administrative burdens or contribution caps.
Other advantages of investment bonds include:
- No contribution caps (unlike super).
- No requirement to meet a condition of release (like retirement).
- Simpler estate planning through nominated beneficiaries.
It’s important to note that investment bonds won’t replace superannuation, particularly given the favourable tax treatment of balances under $3 million. However, they may become a valuable tool in diversified, tax-effective long-term wealth strategies.
If you or your family are likely to be affected by the proposed changes or are considering how best to structure your investments across super, personal, and family investments, now is a great time to seek advice.
Book a meeting with one of our Advisers to discuss how these changes may affect your strategy and what steps you can take into the new financial year.