The tax and investment playbook developed for big balance SMSFs over the past 25 years is about to be ripped up. Here’s what might change.
abor’s $3 million superannuation tax is set to permanently alter the complexion of self-managed superannuation funds because trustees and their advisers may be tempted to stack them full of low-growth, dividend-producing assets.
Switching out of assets such as direct property, more speculative shares and cryptocurrency and into bonds, cash and dividend-producing blue-chip shares could be a smart move, says Brad Twentyman, client director in Pitcher Partners’ super consulting and advisory practice.
“My expectation is there’ll be a rebalancing of assets within super structures away from growth-orientated, high-performing, and maybe slightly risky assets,” he says.
For some investors, cushioning the blow may be relatively simple: buy more fully franked shares.
“Franked dividends may become the most efficient way to manage tax inside large super balances,” says Richard McDougall, who is the co-founder and managing director of Hamilton12, a boutique investment management firm based in Brisbane.
While franking credits cannot reduce or directly offset the new tax, which is formally known as Division 296 tax, they can eliminate 15 per cent of assessable income for super savers in accumulation phase, says McDougall, a former Westpac executive.
“This will have an even greater effect in the pension phase, where income is not taxed at all,” he says. “Franking credits improve the after-tax efficiency of a portfolio. They help preserve capital, particularly in accumulation phase, and generate valuable cash refunds in pension phase. These benefits matter more than ever when a second layer of tax is introduced.”
It must be noted that McDougall runs a strategy that focuses on maximising after-tax income using fully franked Australian equities. But financial advisers agree that Division 296 will usher in a new era of “tax forward” strategising by SMSFs, including the potential for even greater appetite for fully franked shares.
“People have become lazy about investing inside super,” says Peter Crump, a senior associate with the private wealth unit at BDO. “With Division 296, they will need to rethink their investment approach to become more tax aware.”
Division 296 is an additional 15 per cent tax on the year-to-year earnings growth of super balances over $3 million.
Source: https://www.afr.com/wealth/personal-finance/how-the-3m-super-tax-will-change-smsfs-forever-20250528-p5m31s