Over the last two quarters, BT highlighted that superannuation has been in the spotlight in terms of client conversations, with many clients concerned about the Division 296 $3 million super tax. Also high on the list of conversations are discussions about what happens to unused super on death.
Treasurer Jim Chalmers announced changes to the tax on Monday, which will no longer tax unrealised gains and will be indexed alongside the transfer balance cap, while also adding an additional rate of 40 per cent for balances above $10 million.
“The potential operation of the Division 296 tax is of interest and concern,” said Bryan Ashenden, BT’s head of financial literacy and advocacy.
“While a client may not be above the $3 million threshold today, it is the potential impact of a death benefit pension from a spouse, together with insurance proceeds inside super, that has many considering what options exist.”
Ashenden highlighted that uncertainty has been fuelling much of these conversations, with the anticipated introduction of the new tax consistently being delayed.
“There has been an expectation that legislation to enact Division 296 would happen early in the new parliamentary sittings,” Ashenden said.
“However, that has proven not to be the case. With delay comes increased uncertainty, particularly given recent speculation there may be some changes to the previous proposals or a change to the start date.”
The day now set for the rollout is 1 July 2026.
Ashenden also told advisers not to encourage clients to withdraw excessive amounts of money from their super if they are likely to be impacted by the new scheme, highlighting they might not be eligible to recontribute that amount of money afterwards.
With the release earlier this year of ASIC’s report into superannuation funds’ claims handling processes around death benefit payments, many advisers have been focusing on the death benefit nominations their clients have in place and their effectiveness.
“With the range of death benefit nominations available, it is important for advisers to understand the benefits and limitations of each option, so they can help guide their clients in making appropriate choices as part of their estate plans,” Ashenden said.
“Care should also be taken with binding reversionary pension nominations and the interplay with the proposed Division 296 tax as it could result in a higher tax liability under the proposed rules for the surviving spouse,” Ashenden added.
Also high on conversations with clients was the delay to the aged care reforms until 1 November 2025. Like Division 296, the changes were originally slated for 1 July of this year, before being pushed to the November date.
The delay provides an opportunity for aged care providers and impacted individuals to better prepare for the changes, understand the new rules and regulations, and ensure a smoother transition, according to BT.
“Means testing arrangements will change for new participants and likely increase the costs they pay towards any in-home or residential aged care,” Ashenden said.
He added: “The rebalancing of the means test will make the asset test harsher and the income test slightly more favourable. Based on scenarios from adviser queries, the changes will result in higher total fees paid by a majority of new participants.”
