Scott Hay-Bartlem and Clinton Jackson, partners with Cooper Grace Ward Lawyers, said one of the major stumbling blocks to withdrawing money from super is meeting the conditions of release.
“People have been talking to me about withdrawing super without considering if they can,” Hay-Bartlem said.
“If you’re under 65, there are limited circumstances that you can withdraw your super and the consequences of withdrawing if you can’t are quite severe, and I suspect, probably far worse than the tax would end up being.”
Jackson said he has a lot of clients who are not eligible to withdraw money from their funds, and said those who do qualify have a limited ability to then put it back in.
“For some clients, we’ve worked for years and years to help them get assets in their funds,” he said.
“We’re getting so many inquiries on this and it’s always one of those really difficult areas as a lawyer to provide people good quality advice on a topic when you don’t know what the actual laws are going to be.”
He continued that it is important for people to keep in mind that if the legislation is passed in its proposed form, it will start from 1 July 2025, and people who are looking to reduce their super balances to deal with this tax, need to think about strategies, particularly if they have highly volatile assets.
“We’re seeing a lot of clients wanting to move those out of super and replace it with cash and things that maybe don’t have this tax on unrealised gains,” he said.
“The concern is trying to help people implement those within the time for them to do so and thinking through the implications, particularly if they are as part of those actions, reducing their super balances.”
Hay-Bartlem said as there are still a lot of unknowns regarding the legislation, it is important for people to be cautious before doing anything triggered by the proposed new rules.
“We spent so long having strategies to get money into super and given those potential long-term implications of the decision to withdraw money from super, you’ve really got to give detailed consideration to what’s best for your particular circumstances,” he said.
“Speak to advisers, speak to your accountant, speak to your financial advisers before you take any drastic steps, and compare the tax positions inside versus outside before you take it out.”
Jackson said modelling for different scenarios has shown that there are some circumstances in which leaving money in super would still be more beneficial.
“One thing that people need to be conscious of is the start date of the new tax, if it does come into effect,” he said.
“When the legislation comes in, we will have a clearer picture of what actions people should be taking to deal with that tax.”
Hay-Bartlem continued that because the proposed start date is 1 July 2025, as has been stated by the government, if people decide to withdraw money from their super they may not need to do anything before 30 June 2026.
“You don’t have to panic in the next few weeks with the end of the financial year approaching,” he said.
“One of my big concerns is that people panic or don’t have time to make an informed decision and they should take that time to make sure they’re doing the right thing. It’s a bit hard to reverse this once you’ve done it, so I think with the rapid approach, it’s important that people don’t panic.”
This Government is typical of the saying “like a cat amongst the pigeons”.
Labor does not care if it causes chaos …. just so it can get it’s ill designed legislation through and gouge money with no fear of retribution until the next election when it hopes the dust has settled and people have forgotten.
But people may not forget when super contributors find in 10 years or so they have all been dudded because of no indexation and $3M balance won’t fund a decent retirement.
All this has already been said but hopefully younger superannuants are thinking of this.
Trying to beat Division 296 by withdrawals is tax avoidance, plain & simple!
It doesn’t matter if you are a licensed financial planner, accountant or lawyer, anyone advising a client to withdraw super, with the primary purpose of avoiding the imposition of Division 296 tax is promoting avoidance of a tax and imposition of PART IVA.
Yes, but not if you are older and unable to keep up with the red tape and trying to get your head around how to pay tax on a piece of paper called a valuation. By the time the asset is sold, there is no way it is still worth that amount on the piece of paper.
Also, from the point of view of doing what is right, I am of the persuasion that this whole proposal is theft, pure and simple. I do not want to support something that I see as very wrong. It is too much for me to get my head around how a government that encouraged someone to save and sacrifice all of their life can then waltz in and steal those same life-savings to support its own wastefulness, creating a law to make the theft “legal”.
Fortunately, I am not a sitting duck and I empathise with those that are stuck in this mess. Hopefully, it will be reversed by a change of government before your wealth is stripped from you.
Note to the young – don’t bother saving. Live for the now. The red tape is not worth it and don’t believe anything that politicians tell you. When they move their mouth, you know that they are lying.
This is too much for me. I am getting out while I still have head space to simplify my life-time’s savings structure. There is far too much red tape for me to handle and I am very cognisant of that these days, especially during stressful times and this has been exceedingly stressful for me since February 2023. My whole world for the last almost 60 years has been tipped on its head. I don’t want to have this level of stress with my superannuation funds.
By that logic, putting the money into Super in the first place was tax avoidance as you obtained a direct tax benefit.
Scott Hay-Bartlem and Coopers Grace & Ward are leading Lawyers in this area and come highly recommended.
However, there has been renewed interest in the past lapsed Bill in relation to these tax changes and seminars are popping up and being dusted off. All strongly stipulate that it is NOT LAW yet and talk about whether there will be changes. I am in the camp that says there will be no changes because The Labor Party needs the $2 billion in the Budget and has a super majority in the House. They do not care about “Taxation Principles”. They need the revenue.
So, let’s look at some “estimated” conclusions for high income earners with big super balances now or in the future because of assets they already have in super like property or venture capital shares or farms:
1. If you are still accumulating your super, that is, not retired drawing a pension but still working, AND have over $3m in super with a lumpy asset, like property, you are in a hard place.
a. If you try to get the property out of super now, then you will face an effective 10% CGT in the fund on that asset.
b. Then Stamp Duty possibly, even though there are exemptions for asset transfers which can result in No Stamp Duty.
c. Then you will probably put in a discretionary family trust: but then income like rent must be distributed each year and taxed at the beneficiaries’ marginal tax rate, and if that is the TOP marginal rate of 47% like for a Specialist Surgeon, it will make you think twice. Unless you can distribute to other beneficiaries like a spouse or children or company which will have hairs on it down the road like Division 7A, BUT still VERY heavily utilized. It then becomes a deferral game with respect to tax. Deferrable is a winnable game and has been for many years.
d. If there is any benefit it will be majority based on the “specific” asset. If it is a building in a growing city area and it is intended to hold for 15 – 20 years, the Capital Gain may be substantial, like a $5m building being worth $20m in 20 years. Under this new tax, you are hit every year and once tax is paid you never get it back or get a refund. The discretionary trust would allow you to pick both the “timing” of the sale and the beneficiaries. EG; a retired surgeon when your income is smaller, and you can use the 50% CGT exemption and other beneficiaries.
e. At this point, you end up asking whether you should just leave it in Super and pay the extra Tax each year. BECAUSE, remember, your maximum tax will be 30% on the proportion of earnings pertaining to the amount of your total superannuation balance in excess of the $3 million. This is CRITICAL to understand. I have seen scenarios showing reasons to leave it in super and scenarios to move it as soon as possible. My conclusion is that care is needed here because it may depend on who you ask because of the assumptions they make. After looking at the variables above you can see why. Some super administrators, advisors, consultants, even actuaries are very “pro” super and other advisors are not that way inclined. My position is I just want to pay as little tax as legally possible even if I have to put up with a plethora of Super Rules and Regulations.
f. My conclusion is that it is greatly affected by what the asset is and a person’s marginal tax rate in the future. In my example above of the building going from $5m to $20m in 20 years, I am leaning to getting the assets out.
g. Finally, the BIGGEST “strategy” being touted is, if you are over $3m at the 30 June 2026 (assuming that date stands), take a lump sum to drop your “Total Superannuation Balance” to $3m, IF YOU CAN ! This is more possible if you are in pension mode. But it is generally not possible if you are in accumulation mode. The consequences will end up at discretionary family trust investment income distribution issues as mentioned above.
2. The issues are “somewhat” less complicated if you are already retired or more specifically of pension age and drawing down your pension.
a. Here, you do not have a tax payable issue if you are in pension mode and your fund sells an asset to get cash and take money out. This is the PRIMARY reason the CURRENT STRATEGY being touted is to leave everything as is until the legislation comes out and then if the legislation is as proposed, then before 30 June 2026 withdraw a lump sum to reduce your TSB (Total Super Balance) to $3m.
b. However, you still have the “lumpy” asset problem as discussed above with a building, farm of shares that could explode in value lie venture capital shares.
c. Also, you still have the issue of your marginal tax rate outside of super. If you marginal tax rate outside super, even though you are retired is 47%, because you have substantial income or capital gains, then the only benefit you “hope” to gain is as above: family discretionary trust to choose beneficiaries, choose timing of sale, utilize gearing where possible. Again, DEFERAL is the name of the game.
d. Once out of super, you no longer need Audits or need to comply with the ever-growing plethora of Legislation, Rules and restrictions which are now truly out of control and very costly!
I will finish with an example from the highly regarded Firm Cooper Partners: Professor Cooper was considered one of the brightest minds in Taxation and Superannuation Law.
The below example demonstrates the workings of the Division 296 tax.
An individual with total superannuation balances as listed in the table below, who withdraws a pension of $100,000 and makes concessional contributions of $30,000 in the 2026 financial year.
Note, the only cash inflows for the fund in the 2026 financial year are the contributions made. The increase in the value of the account is due to an increase in the value of existing investments in the fund.
Based on the above, this individual would expect to receive a Division 296 assessment of $43,088.
It appears that the taxation issues relating to death benefit payments to non dependants and Life insurance proceeds received by a superfund have not been considered in assessing a strategy for section 296.
Good Luck.
DONT ask your accountant!
The Government saw fit 10 years ago to exclude accountants from giving financial advice. That was as a result of the Govt at the time being lobbied hard by the financial industry to stop accountants advising on superannuation, as advisers were losing business.
So now if you ask your accountant should you take money out of superannuation in anticipation of Division 296, we can’t tell you without fear of retribution by ASIC and potentially affecting out livelihood.
So go and ask your local financial planner. The same ones that are now ringing us up and asking us what their clients should do about Division 296. They have no idea. They wanted accountants out, they got it, and your stuck with it!
So in relation to Division 296 tax, all us accountants can legally say is, if you get it, PAY IT!
(Fortunately lawyers are exempt from financial services licensing).
Now the Financial Planners are asking accountants to look up with the ATO our clients’ Superannuation Contributions and how much our clients can put in with catch up contributions.
I am now wondering if that is the provision of financial advice?
It’s not, as it’s not advice. You are providing factual information. But it is classic Yes Minister Public service idiocy. We’ll provide super data on the tax portal. Accountants can access the information but can’t give super advice. Advisers can give super advice but can’t access the portal. Sir Humphrey Appleby would be so proud of the dimwits in Canberra.
No rush Maria except from a CGT perspective. How much of the year will the SMSF be in pension mode and what proportion of the fund dollar-wise. So much to balance and consider.
100% correct. If in partial pension phase an earlier in the FY withdrawal will increase your ECPI%. Almost no two situations will be exactly same.
Maybe we shouldn’t bleat as even MORE advice is needed.
But then the government wonders why productivity growth is so low.
Refer comments above to suit Humphrey Appleby.
So in simple terms for us Dummies. The way I have been explained is that its calculated like this:
Balance as at 30/6/2026 less the Balance as at 30/6/2025 ( no one will look at withdrawals or funds moved by retirees to other platforms during 1/7/2025 to 30/6/2026? so no rush if you are over 3 mil already to do anything prior to 30/6/2025 actually the higher the balance at 30/6/2025 the less gain in 2025-2026 FY
Confusion reigns.
Many commentators and advisors are interpreting the start date of 1 July 2025 as meaning that the TSB at 30 June 2026 is the first relevant date for calculation of the tax and that you have until then to withdraw funds, which will be added back in the calculation to get the TSB on that date, with the first tax will be payable in 26-27 tax year.
However, if you read the Treasury Paper “Better Targeted Superannuation Concessions” it clearly states that the measure will commence on 1 July 2025 and apply to the 2025-26 financial year onwards. All the examples in this paper use the TSB on the 30 June 2025 to calculate the initial balance to be used in the calculation, which will be payable in the 25-26 tax year. It is clear from this paper that according to Treasury, the start date of 1 July 2025 means 30 June 2025 is the first critical date for the calculation.
We won’t know for sure what the start date of 1 July 2025 actually means until the legislation and regs are finalised, but I would tend to go with the Treasury interpretation which means there is only another two weeks to withdraw funds, unless the Treasury Paper is wrong.
Not quite correct under legislation that is admittedly still only proposed, so who knows. If you are under $3m on 30/06/2026 you don’t enter the regime and no Div296 is payable. If you are over $3m then yes the starting date of 30/06/25 does matter and the higher this number the lower the contingent liability.
Bruce the first step in assessing liability for Div 296 is the end of year TSB. So assume 1 July 2025 is the start date then you look at 30 June 2026 TSB (the total of all the individuals super balances – across all funds). If that is less than $3m NO Div 296 is payable. This is because there is NO PORTION above $3m in which to calculate the liability. The tax only applies to the proportion over $3m.
If the individual miscalculated and ended up with $3.01m (for example), they are liable for Div 296. The next step is to calculate earnings and this is where, any drawings during the financial year are added back.
Important to ensure the logic flow starts at Step 1 – is there a TSB of >$3m as at 30 June 2026
I worry about what happens on 30 June 2027. If $3m at 30 June 26 is the cut-off from liability to pay Div296 tax but is a transitional arrangement where unrealised capital gain and withdrawals are not counted. It is rumoured from a credible source that the cutoff amount of the super account at the EOFY 27 will include unrealised capital gain and withdrawals and may get you over the $3m trigger amount. I am, of course, happy for this to be wrong. There would be profound implications if the rumour is correct.
Worth some investigation.
Assuming 296 applies as drafted Can someone please tell me if withdrawing in December 25 will have me avoid 296 if it causes my balance at 30/06/26 to be under $3m ? (Ie I understand it will simply be added back ) If not surely I have to withdraw in the next “ten minutes” to ensure I’m under $3m ..
Hi Bruce. As it’s currently drafted, if you were to withdraw the excess above $3M prior to 30/06/2026, you wouldn’t need to pay Div 296 tax in the 2026 FY.
The reason for this is that the calculation for the proportion of your Total Super Balance above $3M is measured by what your your Total Super Balance is at 30/06/2026. If your Total Super Balance is below $3M at 30/06/2026, there’s no Div 296 tax payable.