Understanding Division 296 Tax: What it Means for High-Net-Worth Australians

The proposed Division 296 tax is set to reshape superannuation taxation for individuals with balances exceeding 3 million. If passed, this tax will increase the rate on earnings from 15% to 30%, affecting high-net worth individuals and their retirement planning

How Division 296 Works

• Applies to superannuation earnings (including unrealized capital gains).

• Targets individuals with super balances above $3 million.

• The tax rate on affected earnings doubles from 15% to 30%.

Why it Matters
The lack of indexation means that over time, more Australians may find themselves subject to this tax as per their super balances grow.

Potential Impact

• Retirees with large super balances may need to reassess their withdrawal strategies.

• Younger investors should consider whether contributing beyond $3 million remains beneficial.

• Financial advisers are recommending diversification to mitigate future tax burdens.

Next Steps:

With the legislations expected to move forward individuals impacted by Division 296 that is if your current individual balance in super is over or near $3M, then contact our office to discuss your individual facts and explore alternative wealth accumulation strategies.

 Here are some key tax strategies, items and reasons to consider tax planning for 2025:

1. Instant Asset Write-Off: Businesses with an annual turnover under $10 million can instantly write off assets costing less than $20,000 until 30 June 2026. If you're planning to upgrade equipment, now might be the time!

2. Superannuation Contributions: Maximizing concessional (pre-tax) super contributions before 30 June 2025 can help reduce taxable income.

Remember the carry forward super rules were if you haven’t contributed your maximum concessional contribution in prior years, you may be able to catch up.

Remember the tax legislation only allows deductions for superannuation contributions when the amounts are paid. If payments are made by 30 June 2025, the amounts will be deductible in the 2025 financial year. Please note that super funds may have earlier cut-off dates for contributions than June 30, 2025, to enable them to process the contribution, so it’s important to check with your super fund well ahead of time

3. Prepaying Deductible Expenses: Businesses can prepay rent, insurance, or professional fees for the next 12 months to bring forward deductions and reduce taxable income.

4. Consider scrapping plant & equipment that is no longer installed ready for use, as a deduction can be claimed for plant & equipment that is scrapped and is no longer installed ready for use at 30 June 2025.

5. Write off any bad debts.  If you have any debts that are unlikely to be recovered, you can write them off as bad debts and claim them as deductions. You need to have evidence that you have taken reasonable steps to recover the debt and that it is genuinely bad

 6. Consider revaluing trading stock. If the value of trading stock items on hand is below cost price, consider revaluing the trading stock to its net realizable value so as to claim a tax deduction at 30 June 20

7. Electric Vehicle Fringe Benefits Tax (FBT) Exemptions: Providing an electric vehicle to an employee under the luxury car threshold ($91,387 in 2025) may be FBT-exempt, offering a full tax deduction.

8. Review profitable and opportunities to distribute to appropriate beneficiaries or shareholders and ensure your trust distribution minute has been completed before 30 June 2025.

Other keys items to be considered this tax year

9. Also, it’s important to note starting 1 July 2025, taxpayers in Australia will no longer be able to claim an income tax deduction for General Interest Charge (GIC) and Shortfall Interest Charge (SIC) imposed by the Australian Taxation Office (ATO). This means that any interest charges incurred on or after this date will increase the financial burden of tax arrears, as they will no longer reduce taxable income.

Accordingly, if you have outstanding tax liabilities, it may be beneficial to settle them before 1 July 2025 to ensure that any associated interest charges remain deductible. Alternatively, refinancing through a commercial loan could help secure a lower interest rate compared to the ATO’s GIC.

10. ATO Audit Focus Areas: The ATO is increasing scrutiny on short-term rental properties, the cash economy, aggressive tax avoidance schemes, and Division 7A loans. Ensuring compliance can help avoid penalties.

KEY REASONS TO PLAN

By actioning the above, where applicable, it may provide ways to assist in minimising your tax obligations, maximise deductions and credits and may even assist with cash flow and capital use within your business.

In addition, business planning will assist you to gain insights and objectivity and if appropriate review your business structure for effectiveness and opportunities before 30th June 2025 and ensure you are keeping up with the ever-changing tax laws.
As a wrap, we see this time of year a very important time of year for you take a to review your business as it assists you know what’s happening in your business right now and help to know what’s coming next and most importantly ensure you stay compliant.
 
HELP Debt Relief: What You Need to Know!
 
Attention all students and graduates! The Australian government has introduced measures to reduce your HELP (Higher Education Loan Program) debt. If you’ve been feeling the weight of your student loan, this might be the break you’ve been waiting for! 🙌✨
 
Key highlights:
✅ Lower indexation rates to keep your debt from growing too fast.
✅ Possible adjustments to repayments to ease financial pressure.
✅ More support for those struggling with repayment obligations.

 
If you’re affected by HELP debt, then this is Great chance to ease your financial burden!

Harper Group Pty Ltd – Chartered Accountants Frankston - Ph 9770 1547

Disclaimer: All information provided in this article is of a general nature only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting based on this information.

Please note we at Harper Group Pty Ltd are not licensed to provide financial product advice under the Corporations Act 2001 (Cth) and taxation is only one of the matters that must be considered when making a decision on a financial product, including on whether to make superannuation contributions. You should consider taking advice from the holder of an Australian financial services license before making a decision on a financial product.