Division 296 and the quiet recalibration of private wealth

When the Federal Government confirmed the introduction of Division 296, the policy intent appeared narrow: an additional tax on superannuation earnings for balances above $3 million, designed to raise revenue while affecting only a small proportion of Australians.

What has followed is something broader and more consequential.

For many high‑net‑worth Australians — and for those likely to cross the threshold in time — Division 296 has triggered a structural reassessment of where wealth is held, how future capital is deployed, and which parts of the tax system can still be relied upon.

The result is not panic. It is capital re‑direction.

The emotional catalyst: trust, not tax

In private wealth circles, the reaction has been remarkably consistent.

These are individuals who did exactly what the system encouraged: they saved, invested, sold businesses, paid tax, and channelled surplus capital into superannuation over decades. They accepted contribution caps and preservation rules on the understanding that super was the preferred — and protected — environment for long‑term wealth.

Division 296 has unsettled that assumption.

The frustration is not about paying tax. It is about the perception that once wealth reaches a certain scale, the rules change again — and that the superannuation system is no longer a stable container for long‑term or intergenerational capital.

That shift in sentiment matters, because behaviour follows confidence.

Where the money is actually going

The clearest trend advisers are seeing is this: new money is no longer defaulting into super once balances approach the $3 million mark.

Instead, capital is being redirected into three main channels.

1. Family trusts and private companies

Discretionary trusts are once again becoming a central pillar of wealth structuring.

They offer:

• flexibility in distributing income among beneficiaries,

• the ability to manage marginal tax rates within a family group,

• and a level of control and asset protection that superannuation increasingly lacks.

Importantly, trusts allow families to separate ownership from enjoyment, which becomes critical as wealth transitions across generations.

This is not a revival driven by tax minimisation alone, but by control — particularly in an environment where further changes to superannuation are widely expected.

2. Investment bonds — now a primary destination, not a footnote

Perhaps the most decisive shift is toward investment bonds, which are seeing a resurgence in inflows as advisers actively position them as a long‑term alternative to superannuation for excess capital.

This is not anecdotal. Industry reporting confirms that interest in investment bonds has risen sharply in response to Division 296, with advisers using them as the preferred destination for:

• surplus cash that would otherwise have gone into super,

• proceeds withdrawn from SMSFs,

• and long‑term capital earmarked for children or grandchildren.

The appeal is structural:

• investment bonds sit outside the superannuation system,

• they are tax‑paid internally, removing annual personal tax reporting,

• they are not subject to contribution caps or balance thresholds,

• and, when held for at least 10 years, withdrawals can be made without personal tax.

In an era of policy uncertainty, that predictability has become a feature — not a footnote.

Crucially, the headline 30 per cent tax rate is often not the effective rate. Where portfolios incorporate fully franked Australian equities, franking credits flow through the structure and reduce internal tax drag. Industry commentary has noted that effective long‑term tax rates can fall into the low‑to‑mid‑teens, depending on asset mix.

For families who have lost confidence in super as a permanent solution, investment bonds are increasingly becoming the default “outside super” growth vehicle.

3. Inter‑generational loans rather than outright gifts

A quieter but equally important shift is occurring in how wealth is advanced to the next generation.

Rather than gifting capital outright, families are increasingly using documented family loans — particularly where children are purchasing property or investing alongside partners.

This approach allows parents to:

• assist children financially,

• retain balance‑sheet control,

• and protect family wealth from future relationship breakdowns.

It also allows for flexibility: loans can later be forgiven as part of estate planning, but only when families are comfortable doing so.

Super is still relevant — just no longer dominant

None of this suggests that superannuation is being abandoned. For many, it remains an effective vehicle for retirement income up to a point.

What has changed is its role.

Super is increasingly being treated as a retirement funding tool, not a multi‑generational wealth repository. Capital intended for legacy, flexibility, or long‑term compounding beyond retirement age is being redirected elsewhere.

That distinction is fundamental.

The estate planning overlay is accelerating the shift

Division 296 has also brought renewed attention to superannuation death benefit tax, particularly where benefits flow to adult, non‑dependent children.

For families unlikely to exhaust their super during their lifetime, this creates a structural inefficiency that cannot be ignored. As a result, assets intended for heirs are increasingly being accumulated outside super — in trusts and investment bonds — where outcomes are more predictable and controllable.

A familiar story, now repeating at scale

Consider a Melbourne‑based couple with assets exceeding $10 million, largely built through long‑held residential property. Their original plan was conventional: maximise super, retain property, and allow compounding to do the work. Division 296 did not force immediate liquidation. What it forced was re‑allocation.

New capital is now being directed away from super and into a combination of family trusts and long‑dated investment bonds, with the explicit intention of funding the next generation rather than retirement income.

The decision was not driven by ideology. It was driven by risk management.

The policy will pass. The money has already moved.

Division 296 will raise revenue. But it is also reshaping the architecture of private wealth in Australia.

Future capital that might once have flowed into superannuation is now being directed into:

• trusts,

• private companies,

• investment bonds,

• and structured family arrangements designed to withstand policy change.

In that sense, the government may achieve its legislative objective while underestimating the structural response it has triggered.

Where advice now sits

For families affected — or likely to be affected — the critical question is no longer how much tax will I pay this year?It is where should future wealth live at all?

This is where firms such as WE Private increasingly operate: helping families design portfolios that are diversified not just across assets, but across legislative frameworks.

In an environment of constant reform, certainty is rarely found in policy.But it can still be engineered — deliberately — in structure.