Navigating the $200,000 tax trap in high-balance super

For years, the Australian superannuation system has operated as the default, unconstrained destination for long-term wealth. However, as the reality of the Division 296 tax begins to settle into the consciousness of the advice profession, that era appears to be drawing to a close.

According to a new white paper from KeyInvest, “Division 296 and the end of unconstrained super,” the professional conversation has undergone a fundamental shift. The focus is no longer on simply deciphering the mechanics of the policy, but on the tactical asset location strategy required to mitigate its long-term impact on client outcomes.

The numbers provide a stark motivation for this change in focus. The white paper’s modelling shows a $5 million superannuation balance could generate more than $200,000 in extra tax in a decade. For high‑net‑worth clients, superannuation’s tax efficiency is narrowing, forcing a rethink of traditional asset location strategy.

Beyond the policy detail

KeyInvest CEO Craig Brooke notes that the industry has reached a tipping point in its understanding of the new landscape.

“The conversation has moved beyond the detail of the policy itself, and towards how advisers are responding. Most advisers now understand how Division 296 works, but the challenge is what do they do about it.”

This challenge is prompting a move toward earlier intervention. The $3 million threshold is the hard line, but the white paper warns that waiting until clients breach it is no longer a viable asset location strategy. Instead, advisers are increasingly building “Division 296-ready” portfolios well in advance.

The asset location puzzle

Perhaps the most significant strategic shift highlighted by the research is the renewed emphasis on where wealth is held. For decades, the ‘super-first’ mantra was rarely questioned. As marginal tax outcomes within super become less consistent for higher balances, ‘asset location’ strategy has grown more deliberate.

The white paper argues that while super remains central to retirement, it is losing its role as the default destination for long‑term capital. As tax benefits shrink, asset location strategy must balance the friction of restricted holdings against higher tax liabilities on unrealised gains.

The rise of complementary structures

As the “tax gap” between superannuation and alternative structures narrows, the advice profession is looking toward vehicles that offer greater certainty.

Investment bonds, in particular, are seeing a resurgence in interest as part of a broader asset location strategy. Clients nearing the Division 296 threshold use these structures not only for tax-efficiency but also for inter-generational planning.

For the modern Australian adviser, KeyInvest’s message is unmistakable: the era of maximum contribution is giving way to a more nuanced asset location strategy. In the post‑Division 296 world, the best advice may focus less on how much goes into super and more on what should stay out.