Labor’s proposed Division 296 superannuation tax, targeting balances above $3 million, has stirred wide concern among investors and advisers alike. Yet, while much of the debate has centred on equity, bracket creep, and taxing unrealised gains, there is an emerging planning opportunity that may benefit the very demographic that the tax aims to penalise: high-net-worth families.

People are beginning to reconsider the traditional assumption that superannuation is the most effective structure for long-term wealth accumulation and intergenerational transfer.

Reframing Super as a Legacy Tool

Under Division 296, individuals with total super balances exceeding $3 million would be subject to an additional 15% tax on earnings – regardless of whether those earnings are realised. Importantly, the threshold is not indexed, increasing the likelihood that more Australians will be affected over time due to asset growth and inflation.

For wholesale investors, this changes the calculus on the role super should play in long-term legacy planning.

Rather than waiting to pass on super at death – potentially triggering a 17% death benefits tax – families are actively exploring early gifting strategies.

Strategic Considerations

1. Early Inheritance Planning
Clients are exploring early withdrawals from pension-phase super, where capital gains tax does not apply, to provide financial support to adult children and reduce their super balance below the $3 million threshold. This may prevent the erosion of future estate value via death benefits tax.

2. Gifting vs. Interest-Free Loans
From a planning standpoint, both gifts and interest-free loans offer benefits. Gifting removes assets from the super environment altogether and is not subject to income tax. Meanwhile, interest-free loans allow clients to retain some control and ringfence funds in the event of future relationship breakdowns among recipients.

3. Funding Offsets and Wealth Building
Some clients are using early transfers to help children pay down mortgages via offset accounts, easing household cash flow and delivering immediate utility. Others are considering funding school fees for grandchildren or providing deposits for first homes, skipping a generation where appropriate.

4. Estate Equalisation
Clients with more than one child are also engaging in complex estate equalisation strategies, taking into account lifetime gifts and the impact on overall legacy structures. As with all planning of this nature, the documentation, intention, and execution are critical to avoid disputes.

5. Compliance and Caution
Despite the planning activity, there is a clear consensus among leading advisers that execution should wait until legislation is confirmed.

“Strategising is appropriate, but execution should follow certainty,” says James Blaufelder of PGP Group. “We advise clients to wait until legislation is passed. You do not want to unwind a carefully built strategy based on a law that may never be enacted or may be repealed.”

Key Dates and Cautionary Guidance

Although the proposal is scheduled to commence from 1 July 2025, the first tax assessment under Division 296 would apply to the 2026–27 financial year. Accordingly, the key balance assessment date is likely to be 30 June 2026. Clients should ensure their total super balance is under $3 million by that time if they wish to avoid the tax.

Advisers must also be mindful of anti-avoidance provisions under Part IVA of the Tax Act. Any restructuring or withdrawals must be grounded in holistic estate planning, not merely tax mitigation.

Final Thoughts: A Trigger for Broader Conversations

While much of the current focus is on tax efficiency, this proposed change is also a prompt to engage in broader conversations around values, legacy, and financial empowerment across generations.

We are seeing clients in their 40s and 50s – still years away from preservation age – becoming increasingly aware that they may be affected by this tax in the future. This has become a gateway to review broader strategy and structures.

At a time when legislative uncertainty remains, high-calibre clients are best served by scenario modelling, cautious preparation, and strategies that are flexible and future-proof. Division 296 may be a challenge, but it is also an opportunity – to optimise structures, rethink timing, and deepen engagement with the next generation of wealth stewards.

If you would like further information about this, please contact Cadre Capital Partners.