Written

For

The

Australian

-

Wealthy

Australians

outsmart

Labor’s

new

$40bn

super

tax

Labor is banking on $40bn over the next decade from its new super tax. I reckon they'll be lucky to see half of that.

Here's why. The proposed Div 296 tax on super balances above $3m has been in the wind long enough for accountants, lawyers and advisers to sharpen their pencils — and the strategies now emerging are elegantly simple. With extra senators from July, the government has multiple pathways to get this contentious tax over the line. But passing the law is one thing. Collecting the revenue is another.

The most effective workaround I've seen involves bringing forward family succession planning. Rather than waiting until death to pass wealth to the next generation, retirees can add their adult children to the SMSF (up to six members are now permitted, thanks to a 2021 change) and dilute their own member balance below the $3m threshold.

The mechanics are straightforward. A retiree withdraws a tax-free lump sum from their pension account, gifts it to the child, who then recontributes it as a non-concessional contribution — up to $360,000 per child using the bring-forward rules. Someone with $3.5m and two kids can drop their balance to $2.78m in a single move, while the overall family super pool stays intact.

Even farmers with illiquid SMSF assets aren't locked out. A recycling strategy — withdraw cash, gift, recontribute, repeat — can chip away at the parent's balance over multiple years.

Of course, there are caveats. You need to have met a condition of release. You need to genuinely trust your kids not to pocket the gift. And the child's money is then locked away in super for potentially decades.

My advice? Prepare the strategy now, but keep it on ice. Labor doesn't have a Senate majority, and amendments via the Greens or crossbench are entirely possible. Execute only once the final legislation lands.