Aug 18, 2026 Two measures received Royal Assent in June 2026 and between them displace assumptions that have underpinned Australian structuring for twenty-five years.
The general 50% capital gains discount for individuals, trusts and partnerships is replaced from 1 July 2027 with cost base indexation and a 30% minimum tax rate on capital gains, applying only to gains accruing after that date, with a transitional deemed disposal and reacquisition immediately before commencement and an apportionment method to be prescribed. Negative gearing on residential property is restricted from the same date. Division 296, in force from 1 July 2026, imposes an additional 15 percentage points on earnings attributable to total superannuation balances between $3m and $10m and 25 points above $10m, assessed to the member rather than the fund and computed on realised earnings, with thresholds indexed.
The practical effect is that a member above the upper threshold now faces an effective 40% on the relevant proportion of superannuation earnings, which is worse than the 30% borne inside a life company. For the first time in decades the ordering of the concessional hierarchy has been disturbed. Whether the wrapper should be a foreign one is a separate question, and for cross-border families the answer is more often yes than the domestic market allows.
The statutory starting point
The Australian investment bond rests on s.26AH ITAA 1936, which taxes bonuses on eligible policies received within the ten-year eligible period on a reducing scale, with the tax-free outcome after year ten being the residue once the section ceases to apply. The 125% rule governs contribution increases without restarting the period. The life company bears tax on the internal earnings at the corporate rate, and s.160AAB provides the offset architecture, which assumes Australian tax has been paid inside.
Foreign policies occupy a different position. The Foreign Investment Fund rules attributed offshore accumulation to Australian holders until their repeal in 2010, and nothing was enacted to replace them for this purpose. A foreign policy satisfying the s.26AH period can therefore produce a comparable outcome without the internal Australian tax, and correspondingly without the s.160AAB offset. Advisers should treat that as a residue of repeal rather than a settled concession, and should note that the 2026 Budget demonstrated a legislature willing to make structural change on roughly thirteen months’ notice.
Two questions that precede the tax analysis
Is the contract a policy of life insurance? Section 26AH applies to bonuses under eligible policies. Where the contract is in substance an investment arrangement, surrender is an ordinary CGT event, cost base is determined under s.110-25, and the holding period buys nothing. Genuine mortality risk, real underwriting and investment discretion vested in the insurer are therefore not presentational. The s.118-300 exemption and its limits should be considered on the specific terms.
May the carrier lawfully contract with this person? Australia restricts the carrying on of insurance business by insurers not authorised under the Insurance Act, and the direct offshore foreign insurer framework was introduced specifically to close unauthorised acceptance of Australian risks. Whether a given carrier may contract with an Australian resident, and how the introduction was made and evidenced, is a threshold question on which we take Australian regulatory advice before any modelling. It is also the principal reason that pre-migration and non-resident fact patterns are materially cleaner.
Where the trustee analysis bites
Practitioners advising a foreign trust with Australian-resident beneficiaries will recognise the exposure.
Section 99B assesses an Australian-resident beneficiary on amounts paid to or applied for their benefit out of a foreign trust, subject to the s.99B(2) exceptions. TD 2024/9, finalised on 6 December 2024, confirms that the hypothetical resident taxpayer constructed by s.99B(2)(a) and (b) has only one relevant characteristic, Australian residence, so entity-specific concessions including the CGT discount are disregarded while universally available exemptions are respected. PCG 2024/3 sets out low-risk safe harbours, including deceased estate distributions received within 24 months of death not exceeding A$2m where the deceased was non-resident, and documented arm’s length commercial arrangements.
The transferor trust rules in Division 6AAA and the CFC provisions in Part X sit alongside. A policy is a contract rather than an entity in which the policyholder holds an interest, so direct attribution to the policy is not the natural reading; the exposure arises where the policy portfolio holds a controlled foreign company, or where a trust in the chain is a transferor trust.
For trustees the practical consequence is that a properly constituted policy held by the trustee can simplify a chain that would otherwise require annual s.99B analysis on every distribution. The trustee holds one contract, there is no attribution during the term, and the timing of realisation is within the trustee’s control. That is a governance benefit as much as a tax one.
Where an individual ceases Australian residence, CGT event I1 deems a disposal of assets that are not taxable Australian property, with the s.104-165(2) election available to defer at the cost of the assets being treated as taxable Australian property until disposal or resumption of residence, and with the discount apportioned for the non-resident period under the post-8 May 2012 rules. How a foreign policy interacts with that event is a question we put to Australian counsel on the specific facts, and a further reason for the structure to predate the departure.
What the international contract does that the domestic bond cannot
Five points, none of which is a tax argument in disguise.
Currency and investment universe. The domestic bond is an Australian dollar product invested through Australian domiciled funds. A family whose liabilities, heirs and operating interests are denominated elsewhere carries an unchosen currency position.
Portability across a change of residence. The contract does not change when the residence does. For a family whose members are moving between Australia and other systems, the policy is the only element of the structure that survives each move intact, with a holding period already running.
Heirs in estate tax jurisdictions. Australia levies no inheritance tax but does impose CGT on death where assets pass otherwise than to a dependant or the legal personal representative. A beneficiary resident in the United Kingdom faces 40% inheritance tax, one in the United States faces federal estate tax on US-situs assets and the entirely separate regime under IRC ss.7702 and 7702A together with the investor control doctrine, and one in Japan or Korea faces rates above 50%. Structuring for the beneficiaries’ jurisdictions is a different exercise from structuring for the settlor’s.
Transmission mechanics. The contract pays a nominated beneficiary against a death certificate, contractually, without a foreign custodian being asked to recognise an Australian grant.
Negotiated terms. Mandate, custody, currency of account, charging structure and death benefit design are specified rather than accepted.
Asset selection
Interest is assessed at full marginal rates plus Medicare levy, without discount or franking. A substantial fixed-income or private credit allocation is therefore taxed annually at the top of the system on income the family is generally not drawing, which is the allocation to place inside the wrapper first.
Australian equities point the other way: franking credits are wasted in a foreign wrapper, and until 1 July 2027 the discount still applies to directly held assets. The franked domestic book should stay outside. After 1 July 2027 the balance shifts, since indexation with a 30% floor is a materially different regime from a 50% discount, and the transitional deemed disposal is a natural restructuring point that should be considered well before June 2027.
Counterparty selection and reporting
Carrier selection is a matter for advice on the specific arrangement and we do not set out a comparison here. The criteria a fiduciary should apply are, however, worth stating. Solvency supervision and capital adequacy, and whether the regime has been assessed as equivalent by a recognised standard setter. Statutory segregation of policyholder assets, and whether that segregation is effective against the insurer’s general creditors on an insolvency. The existence, and the real scope, of any policyholder compensation arrangement: several widely used schemes cover guaranteed benefits only, which for a unit-linked contract means the practical scheme protection is minimal, and that is a feature of private placement contracts generally rather than of any particular regime. Custody arrangements and whether assets are deposited under a regulator-approved agreement. And the insurer’s willingness and authorisation to contract with an Australian-resident life, which is a question of fact to be evidenced rather than assumed.
Nothing in the structure depends on non-disclosure. A cash value contract is a reportable financial account under the Common Reporting Standard; the specified insurance company reports the policyholder as account holder and the cash value as the balance. Where a trustee is the policyholder, the trust’s own CRS classification and the identification of controlling persons should be settled at the same time as the policy application, not afterwards.
The four clean entry points
Pre-migration, before Australian residence commences; temporary residents within s.768-915 while the exemption applies; departing residents, with the structure in place before the CGT event I1 analysis is engaged; and families whose beneficiaries are already resident in other systems. Each shares the same characteristic: the arrangement is settled before the Australian connecting factor attaches, which is precisely when the regulatory and attribution questions are at their simplest.
This article is general commentary on published tax legislation and guidance for professional advisers. It is not tax or legal advice, and it does not address Australian regulatory or insurance regulatory requirements, on which specific advice should be taken. The capital gains measures described take effect from 1 July 2027 and did not apply for the 2026 income year. Treatment in any individual case depends on the client’s own circumstances and should be confirmed with their own Australian tax counsel. Alpina Legacy does not provide investment, legal or tax advice.