#017 - SMSF Expert Explains How To Beat The $3M Super Tax Legally 💼📈

In this episode of SMSF Insider, host Troy discusses the complexities surrounding Division 296 and its implications for self-managed super funds (SMSFs). He emphasizes the importance of transferring assets outside of superannuation, such as into family trusts or insurance bonds, to avoid the negative impacts of Division 296. Troy explains how Division 296 is calculated based on the fund's asset value as of June 30 each year, illustrating with an example of a fund growing from $3.1 million to $3.5 million. The episode aims to help listeners understand tax planning strategies and how to manage their SMSFs effectively to achieve financial independence. Tune in for valuable insights and expert advice on navigating the world of SMSFs.

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Please note: The information provided in this recording is for coaching and educational purposes only. It should not be considered personal financial advice. Everyone’s situation is different, so before acting on any of the content discussed, please seek independent financial advice tailored to your specific circumstances.

Timestamps:

00:00:00 - 00:00:00: Introduction

00:00:52 - Understanding the Calculation of Division 296

00:02:27 - Valuing Direct vs. Unlisted Assets

00:03:53 - Tax Planning Strategies for SMSFs

00:04:14 - Valuing Unlisted Assets in Industry Funds

00:05:06 - Timing Contributions to Navigate Division 296

00:06:01 - Alternative Investment Options Beyond Super

Episode Transcript

(00:00):
A lot of people have questioned, how do we avoid Division 296? And
there's no real way to avoid it unless you start transferring assets
outside of Super into family trust or insurance
bonds. When you're making contributions to your fund when it's over $3 million
cap, you can speak to your advisor about when you make contributions
to the fund. It may help you with some tax planning strategies for Division

(00:22):
296. Welcome to SMSF Insider, where we help busy
professionals to gain financial independence using an SMSF. Hi,
I'm Troy, founder of Blue Chip SMSF Services. Now, over the last
20 years, I've helped thousands of Aussies manage the complexities of
self-managed super funds. And in this podcast, I'll answer your questions, break
down the myths, so you can take charge of your financial freedom. Let's get

(00:43):
into it. G'day guys and welcome to this edition of
SMSF Insider. Today I just wanted to briefly touch
on Division 296. I know it
does only affect a very small percentage of the population but
I did want to touch on just how it is actually calculated. So

(01:03):
what happens is at the end of the financial year, so June
30, the assets are calculated. So for example,
if your fund balance is $3.1 million at
the start of the financial year, or June 30, 2025 for example, or
2026, we fast forward to the next financial year. So if it's June

(01:25):
30, 2026, then we roll forward to June 30, 2027. We revalue the assets at that point. If it's gone from 3.1 to 3.5, for example, there's
$400,000 growth during that period. So what we do is we take the amount over 3 million, which is

(01:48):
500,000, So we go 500,000 divided by 3.5 million, which is 14.28 or 29%. Then we multiply the
amount over 3 million, which is 500K, times it by that percentage, 14.29%, which equals 57,160. You
then multiply that by the 15%, which equals 8,574. Sounds

(02:17):
a little bit convoluted, but when you write it down, it does make a little bit more sense.
So I just wanted to briefly touch on how Division 296 actually
will be calculated. When we talk about Division 296, obviously, as
I previously mentioned, it does affect only a small percentage of the population currently,
but with some of the assets and
how they'll be calculated. So with direct equities or

(02:40):
shares, for example, it'll be very easy to calculate because we know exactly
what that share is worth at June 30 at the end of the financial
year. With unlisted assets like property, for example,
then you've got to get them valued, and that's can sometimes
be a little bit more subjective in terms of what property is actually worth.
Because at the end of the day, it's only worth what someone's willing to pay for it. Property may

(03:02):
be a little bit more difficult to calculate or value because
it is a little bit more subjective. And the other thing as
well is when you've got assets inside of an industry
fund or a retail fund, they will automatically be calculated
for you. Whereas if you've got an SMCF, You can be a
little bit more creative, I guess, in terms of when

(03:22):
the assets are valued, when you're making contributions to the fund, to
help you navigate around and not avoid Division
296, but it may help you with some tax planning when
you do have an SMSF as opposed to an industry fund or
retail fund. So bear that in mind if you do have a larger balance. and
you are in Division 296 will be affecting you,

(03:45):
then get in touch with an advisor. Maybe an SMSF might be
the right choice in terms of tax planning strategies
when that does come into effect. Just quickly guys, if you're a busy professional
fed up with traditional super funds and overwhelmed by the setup of your
SMSF, we can help. Book in a call with my team using the link
in the show notes and let's build your future on your terms. Now,

(04:08):
back to the episode. So we are talking about valuing unlisted
assets like property. It's very similar with the industry funds
that hold big commercial assets in
the CBDs. They actually, to calculate their
earnings, they need to get these properties valued. So it is, I guess,
a little bit easier for an industry fund to say, okay, well, last

(04:31):
year the building is worth $50 million, this year it's worth $55 million,
so we've made a 10% capital gain. Essentially, they're writing
their own gains because they're unlisted assets and
they're not listed on the exchange, so you can't see what
they're worth on a particular date. It is a subjective valuation at
the end of the day, so it does become easier for these industry funds

(04:53):
to essentially write their own returns. Just talking about
Division 296 once again, it does affect only a small percentage of the population,
but we'll just touch on contributions because, you
know, you can, you know, when you're making contributions to your fund when
it's over the contribution or
when it's over the cap, the $3 million cap, You can

(05:16):
speak to your advisor about when you make contributions to
the fund. So timing your contributions into your SMSF
or your Superfund in general may help you also
navigate and help you with some tax planning strategies
for Division 296. So reach out to your advisor and
they'll be able to help you with regards to when you should make contributions

(05:38):
to your Superfund to help you with Div 296. A
lot of people have questioned, how do we avoid Division 296? There's
no real way to avoid it unless you start transferring assets
outside of super into family trust or
insurance bonds is another one that you could speak
to your advisor about. So essentially an insurance bond

(06:01):
is an investment vehicle where you can invest on
an annual basis. And after 10 years of being in
the insurance bond, all of the gains are
actually tax free. So, or they're actually taxed
internally, so reach out to your advisor. Once
you do get over three million, you could potentially start

(06:23):
to invest, instead of making additional contributions to your super fund,
you could invest potentially in an insurance bond
or something like, or a vehicle like that, which does have the
tax advantage of being tax-free after that 10-year period. Reach
out to your advisor and they'll be able to help you with
some tax strategies for 296 once you

(06:46):
do get over that $3 million cap. So that's it for Division 296 and
how it's calculated. Feel free to drop some comments in
the comment section below should you want us to talk about any
specific topic moving forward. Thanks for tuning in. I'm
Troy from Blue Chip SMSF Insider. Thanks for tuning in to
this episode of SMSF Insider. If you got value from this, make

(07:06):
sure you subscribe so you never miss the strategies we share to
help you take control of your financial future. Find us on socials at bluechipSMSF