Proposed Division 296 Sparks Interest for Investment Bonds

Take outs:

• Division 296 will reshape wealth planning for high-net-worth Australians.The proposed tax targets earnings on superannuation balances over $3 million, doubling the tax rate on those earnings from 15% to 30%.
  
  
• Investment bonds are gaining traction as a tax-effective alternative. Offering low effective tax rates, estate planning flexibility, and protection from legislative changes, they're becoming an attractive strategy for diversification.
  
  
• Financial awareness is critical amid a shifting tax landscape. With many Australians unaware of these upcoming changes, proactive financial advice and long-term planning are essential to avoid unintended tax consequences. 

Proposed Division 296 Sparks Interest for Investment Bonds

Labor's Division 296 to redefine wealth planning for high and ultra-high-net-worth individuals as investment bonds gain traction.

With Labor now securing a majority Government, the proposed Division 296 tax is now expected to proceed to be passed into law. As legislation, it will target earnings on superannuation balances above $3 million by increasing the tax on earnings from 15% to 30%. Although the Bill did not pass before the election, Labor reaffirmed their commitment to the policy in the April budget. The Government’s majority looks like it will be a combined Labor and Greens Senate, meaning the Government may not need the support of crossbenchers to pass the legislation. Industry commentators are calling out that this may also further strengthen the Government’s position to potentially pursue other reforms targeting other wealth accumulation structures.

As legislation continues to evolve, it is more important than ever to diversify financial and wealth accumulation strategies. Investment bonds, for example, offer tax advantages, flexibility, and estate planning benefits — along with the current certainty that they won’t be affected by legislative reforms — making them a compelling option for those impacted by the changing legislative landscape, both now and in the future.

What High-Net-Worth Australians Need to Know

Generation Life’s Not Tomorrow’s Problem research revealed a concerning reality: nearly four in five Australians lack a strong understanding of the upcoming superannuation tax changes. This knowledge gap underscores the importance of financial advice and exploring alternative wealth strategies to navigate a shifting tax environment.

For many high and ultra-high-net-worth Australians, being proactive and exploring tax-effective wealth strategies is more important than ever.

For Australians actively building their wealth, it’s important to consider the tax-effectiveness of their long-term wealth accumulation strategies and consider whether there are alternative solutions. This is important in the context of an investor’s current position as well as the value of their future wealth, which over the long term, they may expect to increase.

For example, a 55-year-old earning $250,000 annually, with a current superannuation balance of $1,400,000 and contributing $40,000 in non-concessional contributions each year, is projected to retire with a superannuation balance of $3,632,782. This would place them above the proposed Division 296 threshold meaning a portion of their earnings may be subject to the additional 15% tax.

Why investment bonds are an attractive proposition

Investment bonds represent a highly tax-effective tool to accumulate wealth both pre- and post-retirement. 

Key benefits of investment bonds for those seeking a tax-effective solution include:

Navigating the Future of Wealth Management

As Australia’s tax landscape continues to evolve, high and ultra-high-net-worth individuals must explore alternative investment strategies to protect and grow their wealth. The proposed Division 296 tax is another example of how the taxation landscape for pre-retirees as well as retirees can reshape their financial outcomes.

More financial advisers are now turning to investment bonds as a smart, tax-effective strategy for building long-term wealth for their wealthy investors. This is reflected in inflows, which increased by 57% from December 2023 to March 2025, with financial advisers and their clients increasingly adopting investment bonds as a wealth-building strategy outside the superannuation system. 

Plan for Life, Investment Bonds Market Report for period ended 31 December 2024 Assumes Year 1 to be the financial year beginning 1 July 2024, the general Transfer Balance Cap, wages growth and the concessional contributions cap for superannuation are indexed at 4% p.a. Super Guarantee contributions are assumed at 11.5% of salary in year 1 and 12% p.a. in the subsequent years. No increase in non-concessional contributions is assumed. Superannuation balance assumes a 7.5% p.a. return after fees and tax return.

Discuss how Division 296 tax may impact you and explore how investment bonds could be used to your advantage by speaking with one of our experienced advisors from the Kelly+Partners Private Wealth team. 

Source: Generation Life. (2025). Proposed Division 296 sparks continued interest for investment bonds. https://genlife.com.au/