Key takeaways:
- Division 296 is part of a bigger picture – The impact of Division 296 should be assessed alongside other tax changes, investment goals and long-term wealth planning considerations.
- Moving money out of super is not always the answer – For many clients, super may remain the most effective structure once tax, complexity and flexibility are considered together.
- Start with strategy, not tax – The best wealth structures are shaped by a client’s broader objectives, not simply the desire to minimise a single tax measure.
According to Heffron Consulting’s Managing Director Meg Heffron, for many years the advice for clients with substantial superannuation balances has been relatively straightforward.
This is because super offered one of the most tax-effective investment environments available during an individual’s lifetime. Unless there were personal circumstances pointing elsewhere, the default position was generally to leave assets where they were until death taxes became a risk – for example, once the first member of a couple had died.
However, Division 296 has changed that conversation, and it is only one part of a broader shift in the taxation landscape. Speaking at the Class Ignite conference, Heffron noted wealth professionals are now assessing the impact of multiple reforms affecting wealth both inside and outside super.
These include the replacement of the 50% capital gains tax discount with an indexed cost-based approach for affected capital gains from 1 July 2027, proposed changes to discretionary trust taxation from 1 July 2028 and the ongoing influence of personal tax rates.
As these changes intersect, the discussion is no longer centred on finding the lowest tax rate, but whether a client’s overall wealth structure remains appropriate when taxation, investment objectives, succession planning and long-term flexibility are considered together.
Clients below $3 million
For clients whose total balance remains below the $3 million threshold, Division 296 does not apply. Super therefore continues to provide a tax-effective environment for accumulating and managing wealth over the long term.
Heffron said while wealth professionals should continue monitoring future policy developments, in most case, the fundamental benefits of super remain and a different structure is unlikely to produce a materially better outcome. The only caveat is that for most people it is worth withdrawing super early enough to avoid death taxes.
The $3 million to $10 million range
A client’s position becomes more nuanced once their total super balance exceeds $3 million. Many clients assume the introduction of an additional tax creates a compelling reason to move assets out of super as soon as possible where in practice, the modelling often suggests otherwise.
Heffron said while there can be advantages where a client has limited income outside super, those benefits can diminish quickly once personal income, investment earnings and realised capital gains are considered.
“Looking at Division 296 in isolation can make super appear significantly less attractive, but that conclusion often changes when the client’s broader financial position is considered,” she said.
For many clients in this range, the additional Division 296 liability is smaller than expected. Once the cost, administration and complexity of alternative structures are factored in, the most effective outcome may still be to retain the existing strategy and absorb the additional tax.
If wealth leaves super, where does it go?
According to Heffron, this is where the discussion often becomes more complex because although moving assets out of super may be relatively easy to execute, identifying the right alternative structure to hold significant wealth efficiently over long periods can be increasingly difficult.
“Moving money out of super is often the easy part. Working out where it should go next is much harder.”
Historically, discretionary trusts played a central role in these conversations because they offered flexibility around distributions and succession planning. However, proposed changes to discretionary trust taxation have reduced some of their appeal, particularly for newly established structures.
As a result, a company may become a practical alternative for holding some wealth outside super. Based on Heffron’s modelling, this may provide greater certainty around the tax rate on retained income and capital gains, although further tax will usually arise when profits are distributed.
However, a structure that appears highly efficient during accumulation can produce a very different outcome once profits need to be distributed, which means wealth professionals must assess the long-term consequences rather than focusing solely on the immediate tax result.
Why tax rates do not tell the whole story
The analysis changes again once a client’s total super balance exceeds $10 million. At that level, some income within super may be taxed up to 40%, compared with the 30% company tax rate, particularly where portfolios generate significant income.
Heffron said although this strengthens the case for considering whether some wealth should sit outside super, the decision is rarely determined by headline tax rates alone. The nature of the assets, the expected holding period and the client’s long-term intentions are often more important than a simple comparison of tax rates.
“Super is really interesting that way, because it’s the one system where your marginal tax rate depends on the size of your asset base, not how much you’ve just earned.”
These considerations frequently shift the focus towards capital gains tax. Assets likely to be sold during a client’s lifetime may continue to favour super because of its concessional CGT treatment. Conversely, assets intended to remain invested for decades or pass between generations may point towards a different structure.
Flexibility also becomes increasingly important. Future withdrawals, asset disposals and death benefits can result in different tax consequences inside and outside super. Alternative structures may not eliminate those consequences, but they can provide greater control over when they arise.
Timing matters as much as structure
Regardless of the structure eventually chosen, timing has become a critical consideration. Clients who wish to reduce the amount of wealth held inside super are often better served by making gradual and deliberate changes rather than reacting to a single legislative reform.
In many cases, the most effective opportunity to revisit a client’s position occurs immediately following a significant asset sale. Liquidity is already available within the structure, allowing changes to be implemented without requiring additional assets to be sold simply to facilitate a withdrawal.
A broader wealth structuring conversation
According to Heffron, the most significant lesson from Division 296 is that it should not be viewed as a standalone tax issue requiring a standalone solution.
Focusing exclusively on the additional tax above $3 million risks missing the broader strategic question. Wealth professionals should instead be asking whether a client’s overall wealth structure remains appropriate when all taxes, investment objectives, succession considerations and future liquidity requirements are considered.
Heffron reiterated that “the conversation shouldn’t start with specific taxes such as Division 296 tax. It should start with whether the overall structure still makes sense.”
For some clients, that analysis will continue to support keeping the majority of assets within super. For others, a gradual transition towards alternative structures may be warranted. Either way, the conversation is no longer about avoiding a single tax measure. It is about understanding the trade-offs across a client’s entire balance sheet and determining which structure is best positioned to support long-term objectives in an increasingly complex tax environment.
About HUB24
HUB24 Limited is listed on the Australian Securities Exchange, and includes the award-winning HUB24 Platform, Class, NowInfinity and myprosperity.
The HUB24 Platform offers advisers and their clients a comprehensive range of investment options, including market-leading managed portfolio solutions, and enhanced transaction and reporting functionality. As one of the fastest growing platforms in the market, the platform is recognised for providing choice and innovative product solutions that create value for advisers and their clients.
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Disclaimer
The information contained in this document is provided by Class Pty Limited (ABN 70 116 802 058) and its subsidiaries (collectively, Class) and is current as at 15 September 2026. It is factual information only and is not intended to be financial product advice, legal advice or tax advice, and should not be relied upon as such. This information is general in nature and may omit detail that could be significant to your particular circumstances. This information is provided in good faith and derived from sources believed to be accurate and current at the date of publication. The information given in this document is in summary form and does not purport to be complete. While reasonable care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation and circumstances can change from time to time. Accordingly, neither Class nor any of its related bodies corporate make any representations or warranties as to the completeness or accuracy of the information in this document and none of these entities is liable for any loss arising from reliance on this information, including reliance on information that is no longer current. We recommend that you seek appropriate professional advice before making any financial decisions. Links to third-party websites are inserted for your convenience, but do not constitute endorsement of material on those sites or the relevant providers.
