Written

For

The

Australian

-

New

super

tax

creates

new

headaches

for

advisers

and

their

clients

Is the great Australian love affair with super finally cooling? After years of telling clients to tip every spare dollar into superannuation, I'm now having very different conversations — and the looming Division 296 tax is the reason.

This week I sat down with a retired client who has $4m in super. We ran through the usual suspects to soften the blow of the new 15 per cent tax on earnings above $3m — family trusts, investment bonds, the works. But in the end, he's decided to use it as the trigger to upgrade the family home. The plan is to pour an extra $1m into a better property in a nicer location and bring his super balance back down to $3m.

Here's the kicker: the $300,000 downsizer contribution he qualifies for is effectively worthless. Why put money in when it will attract 15 per cent tax on earnings under the Transfer Balance Cap rules, and then potentially another 15 per cent under Division 296 — which, remember, captures unrealised gains?

Lee Clarke of Archer Private Wealth flagged some genuinely troubling design flaws to me. Assets sitting below their purchase price won't be reset — so existing losses are simply lost, and future growth is taxed even when the asset is still underwater. He also worries some SMSF trustees will be tempted to fudge valuations. And bizarrely, tax and GST refunds landing in a super account will be counted as growth and taxed under Division 296. So much for the principle of no double taxation.

The government insists only 0.47 per cent of Australians will be caught. Yet Dash Technology Group estimates 21 per cent of the SMSF clients on its platform will be hit. With thresholds not indexed, that number only grows.

The result? Confidence in super is quietly eroding, and more of my clients are choosing to spend today rather than trust the system tomorrow.