Understanding Division 296 and the New $3 Million Super Cap

If you've heard about the government’s upcoming tax on super balances above $3 million and are wondering how to react, it’s important not to make any sudden moves. Here’s what you need to know and why it might be best to stay the course, at least for now.

1. Timing Matters

This new tax is due to start on July 1, 2025, but it’s the *end* of the following financial year (June 30, 2026) when your super balance will be measured against the $3 million threshold. So, pulling out funds early could be a costly mistake, especially if it triggers unnecessary capital gains tax or limits your future growth.

2. Moving Super Isn’t Always the Solution

While the new Division 296 tax impacts high super balances, it’s not necessarily urgent to remove funds from super. For most people, this tax primarily reduces the benefits of super for balances over $3 million rather than making super a poor option altogether. Staying in super might still offer you tax advantages over other investments.

3. The Impact of Death Benefits Tax

Division 296 tax may also bring into focus the tax implications on inheritance. Typically, if super goes to anyone other than a spouse upon death, it’s subject to tax. Reducing your super balance might save family members some future tax, but it's a trade-off with the tax benefits you currently enjoy.

4. Consider Capital Gains Tax

Moving money or assets out of your super fund could trigger capital gains tax, which might outweigh any potential savings from avoiding the Division 296 tax. Before making a move, it's essential to weigh these factors carefully.

At Newcastle Advisors, we’re here to help you navigate these changes and consider all angles before making a decision. If you’re concerned about how this new tax could affect your super, let’s discuss a strategy that keeps your retirement goals on track.

#Superannuation #TaxPlanning #Retirement

Matthew McCabeOctober 27, 2024