The Government’s proposed Division 296 will redefine wealth planning for high and ultra-high-net-worth individuals and is seeing investment bonds continue to gain traction.
Division 296 is no longer a matter of if, but when. Australians with high superannuation balances are facing a new imminent financial reality – is superannuation still the right place for Australians to accumulate their nest egg? Investment bonds are now the strategy that every financial adviser needs to know.
Under the proposed Division 296 changes, Australians will be taxed an additional 15 per cent on earnings on balances above $3 million. While this may apply to a small proportion of the population from the 2026 financial year, it is expected to create a ripple effect for generations to come.
Although the Division 296 Bills were not passed before the election, Labor has reaffirmed their commitment to the policy over the past few months with the Treasurer favouring the new tax as part of an equitable system for all, for a sustainable budget. 1 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.
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 wealth strategies to navigate a shifting tax environment.
The initial impact of the Division 296 tax is expected to affect approximately 80,000 Australians in the 2025/26 financial year. 2 However, with no indexation of the $3 million total superannuation balance threshold, the number of affected individuals could rise to over 500,000 in the future.3
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 solutions that provide flexibility to meet their evolving needs. 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 may expect to increase.
Nothing more certain… investment bonds continues to gain traction amongst financial advisers
Investment bonds as a category represent a highly tax-effective tool to mitigate the impact of the incoming Division 296 tax, accumulate wealth, while facilitating the transfer of wealth transfer across generations.
Superannuation has many tax concessions. But under law, it’s objective is not to be used for wealth accumulation or use as a bequest vehicle. There have been significant legislative changes in the superannuation environment since the formation of the Keating and Hawke superannuation guarantee levy in 1992. Additionally, with the government’s recent focus on tax reforms, and concerns raised about potential higher taxes for trusts, financial advisers are looking beyond to other tax-effective structures.
Against this raft of ongoing change, investment bonds offer a stark contrast: there have been very few changes to the laws and prudential controls governing today’s new generation of investment bonds.
Therefore, there is nothing more certain than investment bonds for many financial advisers and their clients.
Key benefits of investment bonds include:
Creditor protection: Investment bonds held by individuals can be protected from creditors in the case of bankruptcy if set up appropriately. Investment bonds are governed by the Life Insurance Act 1995. This feature makes them valuable to help safeguard clients’ wealth, particularly clients in professions or businesses exposed to financial risks. By holding wealth in a protected structure, clients can gain greater confidence in the security of their long-term financial positions.
Tax-optimised wealth accumulation: Investment bonds are tax-paid structures meaning tax is paid within the investment bond at a capped rate of 30%, which can offer favourable tax outcomes. Long-term effective tax rates in investment bonds can be as low as 10–15% p.a through providers such as Generation Life’s Tax Optimised investment options.4 Investment bonds are an attractive option for clients on high marginal tax rates, allowing more of their returns to compound over time.
Flexibility and access: Investment bonds also allow access to funds before preservation or retirement age and with no lock-up periods, offering greater day-to-day flexibility. This makes investment bonds a powerful complementary solutionto current structures , providing liquidity and flexibility while still delivering long-term tax-effective growth.
Unrivalled estate planning features: Investment bonds can be structured as a non-estate asset, meaning the proceeds bypass estates entirely to go directly to nominated beneficiaries, providing greater certainty. The ability to control how and when beneficiaries receive inheritances, offering peace of mind and control over wealth transfers. These features can help avoid common estate challenges and provide a seamless, private transfer of wealth outside of wills and the probate process.
No death benefit tax: Proceeds of an investment bond are paid tax-free upon death, regardless of who the beneficiary is. Ownership can also be transferred to a nominated recipient without triggering a tax event. It’s ideal for succession and intergenerational wealth transfer planning, offering simple and tax-efficient wealth transfers that can help ensure clients’ wealth remains as a legacy for their loved ones.
Navigating the future of wealth management
As Australia’s tax landscape continues to evolve, high and ultra-high-net-worth individuals must explore investment strategies to protect and grow their wealth.
More financial advisers turn to investment bonds as a smart, tax-effective strategy for building long-term wealth for their wealthy investors. This is reflected in Generation Life’s inflows, which increased by 57% from December 2023 to March 2025, with financial advisers and their clients increasingly adopting investment bonds as their wealth-building strategy.
To learn more about how Generation Life Investment Bonds are a powerful tax-effective and flexible investment solution, visit www.genlife.com.au.
Sources:
1. Treasurer’s Address to the National Press Club, Canberra: Economic reform in our second term, 18 June 2025 https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/speeches/address-national-press-club-canberra-5?utm_source=TSR+-+Chalmers&utm_campaign=0adb724313-EMAIL_CAMPAIGN_2025_06_17_06_16_COPY_01&utm_medium=email&utm_term=0_-faf43857e7-411487504 accessed 27 June 2025.
2. Prime Financial Group: DIVISION 296: Criticism & SMSF Stressors Regarding the $3 million Super Tax: https://www.primefinancial.com.au/blog/division-296-criticism-smsf-stressors-regarding-the-3-million-super-tax accessed 27 May 2025
3. Financial Services Council, Distributional Analysis of unindexed $3 million superannuation balance cap, https://www.fsc.org.au/news/media-release/distributional-analysis-of-an-unindexed-3-million-superannuation-balance-cap published on 3 March 2023, accessed 2 February 2025
4. In Generation Life’s Tax Optimised Investment Bonds only
Disclaimer: Generation Life Limited (Generation Life) AFSL 225408 is the product issuer. This communication is general in nature and does not consider the investment objectives, financial situation or needs of any person, and is not intended to constitute personal financial advice. The product’s Product Disclosure Statement (PDS) and Target Market Determination are available at www.genlife.com.au and should be considered in deciding whether to acquire, hold or dispose of the product. Investments carry risk. Professional financial advice is recommended. Generation Life excludes, to the maximum extent permitted by law, any liability (including negligence) that might arise from this information or any reliance on it. Generation Life does not make any guarantee or representation as to any particular level of investment returns. Past performance is not an indication of future performance. Information provided is not intended to imply any recommendation or opinion about superannuation products or superannuation investments.
