This budget perversely supports the remain-in-super alternative – not by what has changed in super but, rather, by what hasn’t. Considerations surrounding the withdrawal from superannuation to invest individually, or via a discretionary trust, as a response to Div 296 tax, now need rethinking.

The two changes that matter are

• The 50% CGT discount is replaced by cost base indexation for assets held more than 12 months, with a 30% minimum tax on real net capital gains. The reform applies to individuals, trusts and partnerships — but explicitly not to complying super funds or companies.
• A 30% minimum tax applies to the taxable income of discretionary trusts at the trustee level. Beneficiaries receive a non-refundable credit for the tax paid. Corporate beneficiaries receive no credit at all.

Previously, Div 296 modelling has generally favoured, subject to transaction costs and premature CGT, an investment of some part of an in-scope member’s accumulation account into an individual investment structure, including a discretionary trust arrangement.

With the 50% CGT discount gone, a top-bracket investor’s effective CGT rate moves from 23.5% to something over 30% on real gains. More importantly, the move to hold investments in a lower-marginal-rate spouse’s name or in the name of low tax beneficiaries via a discretionary trust moves such strategies into the 30% minimum tax bracket from 1 July 2028. Beneficiaries will also not be eligible to receive any tax refund on that 30% like they do with franking credits. This means that bucket companies — long the standard tail of these structures — get no credit at all, so are double taxed.

The result is that the individual, including discretionary trust, investment alternative to superannuation has become less attractive as a solution to Div 296 which leads us to an important point. The typical Div 296 calculator answers the same question: how much tax will I pay? It is the obvious question. It is also the wrong one. The right question is what will this decision do to my wealth over the rest of my life? Withdrawal is, in nearly every case, irreversible. There is no benefit in saving the tax at the expense of the member’s wealth. A sector full of tax calculators is, by accident, encouraging exactly that mistake. Our Div 296 modelling tool comprehensively reviews the options however, these changes are complex to model, so it will take us until tomorrow or Friday to upgrade the tool. You’ll know by the note in the preamble.