Meg's Musings - June 2025

The Division 296 tax debate has well and truly entered the mainstream media! I wonder if it will be enough to give the Government pause for thought? At this stage I would be glad to see almost any alternative but perhaps the key here is we should expect one. We won’t simply see Division 296 die with nothing rising in its place – the Government has factored revenue from this tax into the budget and will need to collect something from someone.  

Logically, it will be additional taxes from those with higher balances and any alternative to Division 296 will capture a different set of people in a different way. There will be winners and losers. And it will be a change from the status quo. The inevitable response to any superannuation change is “we’re disrupting a long term retirement vehicle, that will shake confidence”. I can see that point but on the other hand, expecting any tax regime to stay precisely the same for 30, 40 or 50 years seems unreasonable to me. Life changes, the economy changes and so too will our super system. What ruffles confidence, I think, are changes that appear random, or unfair, or like the beginning of something bigger. To my mind that’s been the biggest issue with Division 296 tax. Suddenly taxing people on potentially random movements in their wealth over an arbitrary period (the financial year) with no refund if increases disappear has felt wrong to many from the beginning. 

But if Division 296 goes, what will come in its place? Given the focus has been on large balances, should we expect something that looks to prevent that problem in the future? We already have contribution caps that make it much harder to grow a large super balance these days. But to be honest I’ve long been an advocate for a return to “compulsory cashing”. That’s the name given to rules that force people to start taking their money out of super (either as a lump sum or by turning it into a pension) during their lifetime.  

We already have compulsory cashing on death – the deceased’s super can’t just remain in their fund. And until 2007 we used to have it for everyone once they got to a certain age (at the time, it was 65 for most people). But that was back in the day when there was no transfer balance cap to limit pensions. We would need some rule changes to allow people to turn all of their super into pensions but ensure that pensions over the transfer balance cap didn’t get the same tax concessions as our current pensions. Perhaps the fund’s normal taxable investment earnings on these “excess pension” accounts would be taxed at a higher rate than normal retirement phase pensions?  

If we did return to compulsory cashing, we’d create a different set of problems for a different people. Some people might be better off under Division 296. What we might achieve, though, is something that gives the Government the ability to increase taxes on realised gains only, not unrealised gains. 

Aside from Division 296 tax, the big news at Heffron has been more about the opening of registrations for our Super Intensive Day 2025 (August / September). And for us there’s another exciting element. We’re doing some major work on our technology to modernise and bring together all the various systems our clients use to work with us. Clients buying tickets to our Super Intensive Day get a sneak peek at just phase one of that development program (our events), which will be closely followed by all our other education (courses etc) before we move on to other services. If you work with us often you’ll definitely hear more about this in the coming months.