The Australian Government’s proposed Division 296 tax is a shifting of the Super goalposts that has possibly created some concern for some of your clients. The proposal is for a new 15% tax on superannuation earnings exceeding $3 million.1 This change, which includes taxing unrealised gains, has sparked concerns about liquidity and the potential need to sell assets to meet tax obligations.

Understandably, clients with substantial balances in their super are reassessing their financial strategies and looking to you for ideas on the best way forward. One thing you may not have fully explored yet is philanthropy and the role it can play in diminishing some of the negative consequences of the tax, while enhancing many of the positives of giving back.

More Give, Less Tax?

Charitable donations are often used tax effectively in a financial year. But perhaps philanthropy can be more effective over the long term if that philanthropy is more structured, perhaps through an ancillary fund.2

Ancillary funds are structured philanthropic vehicles that allow donors to:

  • Receive immediate tax deductions for contributions.
  • Distribute funds to eligible charities over time, providing a lasting legacy.
  • Maintain a level of control over the investment and distribution strategy.

By redirecting a portion of superannuation funds into an ancillary fund, your clients can potentially reduce their super balance below the $3 million threshold. This could mitigate the impact of the tax, should it become law, while supporting causes they are passionate about.

Strategic Philanthropy in Action

Consider a scenario where an individual with a super balance slightly over $3 million decides to establish a Private Ancillary Fund (PAF), contributing the excess amount. This action not only brings their super balance below the taxable threshold but also initiates a structured giving plan that can support charitable causes for years to come.

Moreover, the Australian Taxation Office provides guidelines to ensure that such philanthropic structures are used appropriately, with annual distribution requirements and compliance measures in place.3

A Dual Benefit Approach

Embracing philanthropy through ancillary funds offers a dual benefit:

  1. Tax Efficiency: Immediate deductions and potential reduction in taxable super balances.
  2. Social Impact: Structured, ongoing support to charitable organisations, amplifying one’s legacy.

Conclusion

The proposed Division 296 tax serves as a catalyst for high-net-worth individuals to explore alternative financial strategies. Private and Public Ancillary Funds stand out as viable options, marrying the goals of tax efficiency and meaningful philanthropy.

If you would like to know more about how philanthropy could help your clients to navigate these changes, please reach out to the Elston Adviser Services team or directly to our Head of Philanthropic Services, Susan Chenoweth.

References

1 https://www.afr.com/wealth/personal-finance/5-strategies-to-deal-with-labor-s-3m-super-tax-increase-20250506-p5lx0v

2 https://www.elston.com.au/making-giving-personal/

3 https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/getting-started/starting-an-nfp