For decades, superannuation was Australia’s ultimate long-term wealth engine. High-income earners and business owners were encouraged to maximise contributions, invest for growth, and let compounding (backed by generous tax concessions) quietly build their retirement wealth.
That era is now ending.
For investors with substantial balances, particularly SMSF trustees, super is no longer a passive vehicle. Policy changes, tax reforms, contribution caps and rising regulatory scrutiny have turned super into a structure that demands active management and strategic oversight.
The ATO has introduced new tax measures that fundamentally change the economics of holding large sums inside super. At the same time, regulatory bodies like ASIC and APRA have stepped up their oversight, pushing SMSF trustees toward professional-level fiduciary standards. Meanwhile, the realities of longer retirements and volatile markets have reintroduced risks that passive strategies often ignore.
The ATO’s new tax rules
Arguably the most consequential change has come from the ATO’s implementation of the Better Targeted Superannuation Concessions, expected to apply from 1 July 2026. Under these new rules, individuals with super balances exceeding $3 million are expected to face an additional 15 per cent tax on earnings attributed to the amount above that threshold, a tax commonly referred to as Division 296.
What does this mean in practice? Earnings on super balances up to $3 million will continue to benefit from the usual 15 per cent tax rate during accumulation (or 0 per cent in the pension phase). But any earnings on amounts beyond $3 million will now be taxed at 30 per cent, effectively doubling the tax rate on those earnings regardless of whether the gains are realised or remain unrealised. The ATO will determine this liability using a formula that tracks annual changes in the total super balance.
Furthermore, the revised Division 296 bill has added a second threshold of 40 per cent for earnings above $10 million and both thresholds will be indexed.
For many SMSF trustees and affluent investors, this represents a seismic shift.
Heightened compliance expectations
Simultaneously, SMSFs are now subject to far greater regulatory scrutiny. ASIC has been vocal in its warnings to trustees about the dangers of inappropriate investment strategies, particularly over-concentration in illiquid assets like property, lack of diversification, and poor liquidity planning to meet pension obligations. Thus, SMSF trustees could be expected to adopt professional governance practices: documented investment strategies, risk management frameworks, thorough cash flow modelling, and detailed retirement planning.
The ATO has also increased its audit activities, focusing heavily on related-party transactions, property dealings, limited recourse borrowing arrangements, asset valuations, and residency compliance for members with international ties. Trustees who fail to meet these higher standards risk tax penalties, forced asset sales, and even loss of concessional tax treatment. For high-net-worth families relying on SMSFs as a cornerstone of their wealth, this means governance is as critical as investment performance.
Strategic architecture for large super balances
Navigating the new tax and regulatory environment demands a more sophisticated approach to structuring super assets.
Division 296, combined with transfer balance cap rules, requires members with large balances to actively decide how much capital remains inside super, how much is better held outside, and which assets should be allocated where. Currently, the transfer balance cap limits the amount that can be moved into the tax-free pension phase to $2 million per person. Amounts above this remain in the accumulation phase and are taxed accordingly, and now, potentially subject to the Division 296 surcharge.
For couples, this translates into a $4 million tax-free pension environment, plus up to $6 million in accumulation before the higher tax applies to earnings on the excess. Beyond that, earnings face steeper taxation.
This reality means that structure and sequencing matter immensely. Simply growing a super balance is no longer enough; one must carefully plan contributions, withdrawals, asset sales, and pension commencements to optimise after-tax lifetime outcomes.
Markets have reintroduced timing and liquidity risks
The volatile markets of recent years have served as a sharp reminder that investment returns are not guaranteed or linear. Equity market swings, interest rate fluctuations, and inflation shocks have brought sequence-of-returns risk back into focus, especially for retirees drawing pensions from their SMSFs.
Those with concentrated exposures in property, private equity, venture capital, or unlisted investments now face a critical liquidity challenge. ASIC has cited cases where SMSFs were forced to liquidate long-term holdings at unfavourable prices simply to meet pension payment obligations or tax bills.
In response, a modern SMSF strategy must prioritise liquidity planning, including maintaining adequate cash buffers, performing rigorous cash flow forecasting, stress testing for market downturns, and ensuring pension sustainability through cycles.
Portfolios assembled years ago without these considerations may no longer be fit for purpose.
Superannuation enters an age of active wealth management
For high-net-worth individuals, superannuation is no longer merely a retirement vehicle. It is now deeply intertwined with intergenerational wealth transfer, death benefit taxation, and sophisticated estate planning strategies.
The ATO’s treatment of super on death is unique. Adult beneficiaries can face a 15 per cent tax plus the Medicare levy on taxable components if appropriate planning is not in place. Binding death benefit nominations, reversionary pensions, testamentary trusts and the control of corporate trustees have therefore become essential tools for preserving wealth and minimising unnecessary tax leakage.
In this environment, estate planning can no longer be an afterthought. Active and coordinated structuring is required, with trustees carefully managing the segregation of taxable and tax-free components and aligning super strategy with broader family wealth objectives. Off-the-shelf templates are rarely sufficient.
To thrive in this transformed landscape, investors must adopt a proactive, holistic approach to superannuation. This means conducting annual strategic reviews that go well beyond performance to assess tax exposure, pension eligibility and compliance risks. It requires modelling the impact of Division 296 to determine which assets truly belong inside super, and implementing contribution strategies that maximise tax efficiency through concessional caps and spouse planning.
Asset location planning is now critical, as is maintaining sufficient liquidity to sustain pension payments through market volatility. And estate planning must be fully integrated to ensure wealth is preserved not only for retirement, but across generations.
Arthur Marusevich is a financial services lawyer with expertise in superannuation and investments.
