“The proposed new tax requires more than just incremental adjustments – for some investors, it calls for a fundamental structural re-evaluation. For SMSF clients approaching or exceeding the threshold, the ability to tax-effectively diversify wealth outside of super has never been more important.”

Stranges said traditional structures, such as family or discretionary trusts with or without beneficiaries, or establishing investment companies to hold investment assets, will continue to have their place. However, as the landscape evolves, one option stands out more clearly as a suitable alternative: investment bonds.

He added that although not as widely recognised as other structures, investment bonds are becoming increasingly relevant for Australians likely to be affected by the proposed Division 296 tax.

“For SMSF members approaching retirement or constrained by contribution caps, investment bonds can provide flexibility, diversification, and tax efficiency that complements rather than competes with their current arrangements, to address the core need of their wealth goals.”

“Investors are now seeking to diversify how they save for retirement and also pass on wealth. They are looking for structural flexibility, tax-aware return outcomes, and confidence their wealth won’t be beholden to future ongoing tax tinkering.”

Stranges said that although investment bonds were seen as products past their heyday, today’s investment bonds have evolved and combine tax effectiveness and versatility.

“Earnings are taxed internally within the investment bond structure at a maximum rate of 30 per cent, with no personal annual tax reporting required on underlying earnings. Long-term effective annual tax paid rates for investment bonds can be estimated to be as low as 10–15 per cent.”

“They also allow access to funds before preservation or retirement age, with no lock-up periods, offering greater day-to-day access. They become most tax-effective at an investor level after 10 years, where withdrawals are received fully tax paid with no additional top-up tax.”

Another benefit of investment bonds, Stranges said, is flexible ownership, as they can be held individually, jointly, or through trusts or companies. Ownership can also be transferred at any point without CGT incurred.

“Those held by individuals can be protected from creditors in the case of bankruptcy if set up appropriately, and they can be structured suitably as non-estate assets to help reduce the complexities and issues with dealing with wills and estates, including the need to obtain probate,” he added.

“They provide for direct beneficiary nominations as a lump sum payment or can be structured to be transferred ownership in whole on death – all without any death benefit tax and with no CGT consequences.”

Compared with alternative structures, such as IDPS platforms, investment bond fees are competitively comparable. Platform administration fees can typically range between 0.6 per cent per annum. to 1.27 per cent per annum for account balances of around $50,000, with potentially higher fees for smaller balances.

“Even when not using platforms, alternative structures such as trusts and companies do come with their own costs both to establish and maintain on an ongoing basis,” Stranges said.

“These costs can vary depending on the complexity required, however, ongoing costs to manage their accounting, compliance and tax management could be significant.”

While trusts and companies remain core structuring tools within SMSF, Stranges said they can introduce administrative burden, complexity and challenges around income and distribution management, tax leakage, and Division 7A compliance obligations for companies.

“Investment bonds, by contrast, offer tax management simplicity, flexible access, asset protection, and tax-effective estate and succession planning solutions. For clients above a 30 per cent marginal rate or likely to be impacted by the proposed Div 296 tax, the tax effectiveness of investment bonds can be a strategic advantage.”

“Although investment bonds don’t replace superannuation, they complement it. They offer a way to continue building wealth tax-effectively once contribution caps and transfer balance limits begin to bite.”