Insurance bonds are being suggested as a solution to Div 296. They certainly have their uses but as a vehicle to accept funds removed from super to avoid Div 296? I don’t think so!

Insurance bonds pay an underlying tax rate of 30%. The earnings on a member’s super balance in excess of $3m is 30%, notwithstanding the controversial nature of the calculation methodology. The effective tax rates can be reduced further by the application of tax credits such that, for a similar portfolio, the net tax rate will be similar.

Super fund withdrawals are tax free to a member from age 60, the demographic which constitutes the bulk of members with over $3m balances. Withdrawals from investment bonds incur tax unless held for 10 years.

The Div 296 tax calculation methodology has been rightly criticised for its effect on super funds holding direct property and volatile assets such as shares in startup companies or crypto. Insurance bonds are not affected by such movements but neither do they allow these investment options.

Insurance bonds have their uses but any suggestion that they pose a blanket solution to members with large super balances is simply wrong.