I am just putting the finishing touches on, what I intend to be, the ultimate tool for Div 296 modelling of superannuation withdrawals and reinvestment in individual names, companies or insurance bonds. The tool will be embedded in our Div 296 FAQ and be available for public access as a service to the sector.

The tool will model the effect on a member’s wealth over time considering:

• Pension/accumulation split with minimum pension drawdown rates by age
• Div 296 two-tier proportional calculation with CPI-indexed thresholds
• Cost-base tracking for capital gains
• Turnover determined by investment choice
• Income reinvestment adjusting cost base
• Transaction costs and CGT on initial rebalancing
• Terminal value encashment calculation including unrealised gains crystallisation on full redemption of the investments in all structures
• 12 pre-built portfolio profiles spanning Australian equities, international equities, property (direct and listed), fixed income, cash, hybrids, and balanced – incorporating benchmark income and capital growth plus expected turnover
• Sensitivity analysis across all portfolio profiles
• Full walkthrough mode showing every intermediate tax calculation step-by-step
• Interactive charts comparing baseline vs combined strategy net position over time

Based on preliminary testing across portfolio types and balance levels, some patterns have emerged from the modelling. As you would expect, the two Div 296 tiers produce quite different outcomes. The first tier and second tier need to be considered separately, because the case for withdrawal depends almost entirely on which tier the member’s balance falls into.

For members whose balance sits between $3m and $10m, super generally wins. The exception is if the portfolio mainly comprises cash, term deposits, and fixed income which is not what you would expect to find in a long-term investment portfolio. For such portfolios, the insurance bond has a narrow advantage due to its tax-free redemption after 10 years

For members with balances above $10m, the picture changes. At this level, the insurance bond’s advantage is genuine across most portfolio types though this advantage is tempered by the costs of restructuring and the inability of insurance bonds to invest in direct property and narrows as investments favour growth-oriented portfolios.

The company vehicle almost never produces the best outcome at either tier due to its tax position on final encashment.

The individual vehicle can outperform super for second-tier members over shorter horizons but fails over the longer term if taxed at the highest marginal rate.

I have not included trusts as their position will be determined by the tax rate of the beneficiaries. Altering the personal tax rate under the individual scenario will produce a valid comparison though.

The key takeaway is that the withdrawal strategy is primarily a second-tier play. For members between $3m and $10m, super remains the most tax-efficient vehicle for most portfolio types, and the case for withdrawal is narrow. Above $10m, the additional 10% Div 296 rate creates an incentive to move capital outside super, particularly into insurance bonds, and particularly for income-oriented portfolios.

I’ll let you know when the modelling tool goes live.