As you approach retirement, understanding the implications of new tax regulations is crucial for safeguarding your financial future. The introduction of Division 296 tax presents both challenges and opportunities for those with significant superannuation balances. At Precision Wealth Management, we are here to help you navigate these changes with strategic insights tailored to your needs.
Understanding Division 296 tax
Effective from 1 July 2025, the proposed Division 296 tax imposes an additional 15% tax on earnings from your Total Superannuation Balance (TSB) exceeding $3 million. This tax applies to both realised and unrealised gains, potentially increasing the total tax on some returns to 30%. For retirees and those nearing retirement, this could have significant implications for your financial planning.
Strategic opportunities for retirees
- Asset Diversification: Consider diversifying your investments by holding some assets outside of superannuation. This can help manage your tax exposure and provide more flexibility in your financial strategy. In retirement, you are still subject to the tax-free threshold. Therefore, if the majority of your assets are within the superannuation environment and potentially being subject to Division 296 tax, it may be beneficial to begin accumulating assets outside of superannuation (depending on your current circumstances).
- Super Splitting: If you have a spouse, super splitting can be an effective way to balance superannuation accounts and reduce the tax burden. You are eligible to super split 85% of concessional contributions each financial year to your spouse. By spreading the balance across both partners, you can potentially keep each individual’s TSB below the $3 million threshold.
- Re-contribution Strategies: Re-contribution strategies can help optimise your superannuation balance by converting taxable components into tax-free components, which can be beneficial for estate planning and reducing future tax liabilities. This strategy involves withdrawing a lump sum from your superannuation after you have met a condition of release, and contributing the lump sum to your spouse’s superannuation, within their contribution caps.
- Reviewing Pension Drawdowns: For those already in retirement, reviewing your pension drawdown strategy can help manage your super balance and tax obligations. Adjusting the timing and amount of withdrawals can provide tax efficiencies. If you aren’t retired yet, we highly recommend reviewing your retirement planning with an expert as early as possible.
Areas of concern and consideration
- Unrealised Gains: The inclusion of unrealised gains in the tax calculation raises concerns about fairness and valuation complexity. It’s important to regularly review your investment portfolio to understand potential tax implications that may affect your financial situation. This is primarily an area of concern for SMSFs that own property or hold shares in their business, or put simply, illiquid asset holders that may struggle paying the tax on unrealised capital gains.
- Estate Planning: With the introduction of Division 296 tax, revisiting your estate planning strategy is essential. Consider how the tax might impact your beneficiaries and explore options to minimise tax liabilities.
- Legislative Changes: Stay informed about potential legislative changes that could affect your superannuation strategy. There is still more information to come out of the Division 296 tax legislation and how it will affect many Australians. Working with a financial advisor can help you adapt to new regulations and make informed decisions.
Why partner with Precision Wealth Management as your North Lakes financial advisor?
Navigating the complexities of Division 296 tax requires expert guidance. At Precision Wealth Management, our advisors in North Lakes and Birtinya in the Sunshine Coast are dedicated to providing personalised strategies that align with your retirement goals. We specialise in helping you optimise your financial strategies for long-term success.
As Division 296 tax approaches, proactive planning is key to maintaining financial security in retirement. Contact Precision Wealth Management today to learn how we can help you navigate these changes and seize opportunities for a secure financial future.
Financial Advisor Sunshine Coast
About Us
Precision Wealth Management is a local financial planning firm. We have offices in North Lakes, Brisbane’s northside, and the Sunshine Coast.
Our certified advisors collaborate with clients to develop tailored wealth creation strategies that suit their individual needs. We are committed to leading the industry, utilising an investment approach grounded in extensive research and experience.
DISCLAIMER – The information provided in this blog is general and does not consider your individual financial needs or objectives. It does not constitute personal advice. We recommend seeking out professional and independent financial, legal and tax advice which has been designed for your individual situation before acting on any information contained below.
