With Labor now securing a majority Government, the proposed Division 296 tax is now expected to proceed to be passed into law. As legislation, it will target earnings on superannuation balances above $3 million by increasing the tax on earnings from 15% to 30%. Although the Bill did not pass before the election, Labor reaffirmed their commitment to the policy in the April budget and in mid-May. The Government’s majority looks like it will be a combined Labor and Greens Senate, meaning the Government may not need the support of crossbenchers to pass the legislation.
As legislation continues to evolve, it is more important than ever to diversify financial and wealth accumulation strategies. Investment bonds, for example, offer tax advantages, flexibility, and estate planning benefits — along with the current certainty that they won’t be affected by legislative reforms – making them a compelling option for those impacted by the changing legislative landscape, both now and in the future.
Investment bonds are an attractive proposition
Investment bonds represent a highly tax-effective tool to accumulate wealth both pre- and post-retirement.
Key benefits of investment bonds for those seeking tax-effective solutions include:
Creditor protection: Investment bonds held by individuals can be protected from creditors in the case of bankruptcy, if set up appropriately.
Tax-optimised wealth accumulation: Investment bonds are tax-paid structures, offering favourable tax outcomes. Long-term effective tax rates can look to being as low as 10–15% p.a.
Flexibility and access: Investment bonds allow access to funds before preservation or retirement age and with no lock-up periods, offering greater day-to-day flexibility
Unrivalled estate planning features: Investment bonds offer the ability to control how and when beneficiaries receive inheritances. Optional features allow limitations on access, offering peace of mind and control over wealth transfer
No death benefit tax: Proceeds are paid tax-free upon death, regardless of who the beneficiary is. Ownership can also be transferred to a nominated recipient with no tax event — ideal for succession and intergenerational wealth transfer planning.
What high-net-worth Australians need to know
Research1 revealed a concerning reality: nearly four in five Australians lack a strong understanding of the upcoming superannuation tax changes. This knowledge gap underscores the importance of financial advice and exploring alternative wealth strategies to navigate a shifting tax environment.
For many high and ultra-high-net-worth Australians, being proactive and exploring tax-effective wealth strategies is more important than ever.
Remember, this is an area where a Financial Adviser can provide substantial value.
1 Generation Life’s Not Tomorrow Problem Research Paper, June 2024