In our last article we discussed those who may be affected by the draft legislation for the new Division 296 tax on individual super fund balances over $3m in size. Previously (14/9/2023) we discussed how the tax was calculated and that it also potentially taxed unrealised capital gains at 15%. Today we discuss some strategies to minimise the effect of the tax.
1. Prior to being able to access superannuation at 65
Once you are over 65, you can commence a tax-free pension and also access your superannuation balance in full. If you are between 60 and 65, access to super is possible but with restrictions. However if under 65, consideration should be given as to whether assets are best held in super, especially if future revaluations of these assets could increase the members super balance above $3m. Assets that could potentially give rise to large capital gains and have potentially volatile valuations, may be considered for purchasing outside the super environment where unrealised capital gains are not subject to Division 296 tax. These assets might include speculative stocks, private equity, venture capital and even some property purchases.
2. Over 65 and accessing superannuation
To the extent that a member’s superannuation is used to fund a pension, the earnings on their superannuation account are free of tax, as opposed to the rate of 15% that applies to any portion of the fund in accumulation phase. Where a member has more than $3m in super, they will pay an additional 15% tax on all earnings (unrealised capital gains included) relating to the portion of their super fund balances that is over $3m.
Once you are in a position to access super, it may be appropriate to withdraw assets from the superannuation system and invest outside super, depending on your circumstances. Typical investment structures that could be used include:
- Investing assets in personal names given the Stage 3 tax cuts from 1/7/2024 will have a maximum tax rate of 30% + Medicare levy of 2% up to an income of $200,000.
- Investing in an insurance bond(s) where the maximum tax rate is 30% within the bond. There are also excellent estate planning options available as these can bypass the Will.
- Discretionary family trusts that allow for distributions to lower taxed beneficiaries.
- Gifting funds directly to the next generation(s). For instance, $50,000 invested for a grandchild who is 10 years old in a super fund earning 7% could grow to $1.6m when the child turns 60 with no further contributions.
BYRONS can assist you at each stage of your superannuation journey to minimise tax payable while helping to ensure your assets are available to your beneficiaries in a methodically well thought through manner.
Byrons PWS Pty Ltd as Authorised Representative of Professional Wealth Services Pty Ltd | ABN: 58 174 609 776 | AFS Licence Number 312047
Disclaimer: The information above is intended as general information only and should not be taken as advice. It includes complex issues which have not yet been legislated. No action should be taken prior to taking financial advice tailored to your personal circumstances.