How would you feel if you were taxed on paper gains (before asset is even sold) instead of being taxed on cash gains (after you have sold the asset) and you have the cash to pay the tax?
What Is Being Proposed?
Treasurer Jim Chalmers proposed a new policy during the election: if your superannuation balance exceeds $3 million, you could be taxed on unrealised capital gains, the increase in asset value even if the assets haven’t been sold.
How Does This Affect You?
If your super fund includes property or shares that go up in value, you’ll still need to pay tax on that increase, even though you haven’t earned any cash from selling them. This means you may have to find money elsewhere just to cover the tax bill.
Little Opposition and Likely to Pass
This policy received minimal opposition at the time, and with Labor now controlling the House of Representatives, it’s likely to return to Parliament. Only a small number of votes from the Greens and Independents are needed for it to pass.
No Indexation Means More Australians Could Be Affected
The $3 million threshold will not be indexed to inflation. While $3 million may seem like a lot now, over the next 10 to 20 years it may become much more common, potentially affecting more middle-class Australians.
This effectively introduces what many are calling a new form of inheritance tax.
Could This Expand Beyond Super?
There are concerns that once a tax on unrealised gains is introduced within superannuation, it could eventually apply to other investments outside of super. With ongoing government spending and budget deficits, the pressure to raise revenue is increasing.
Who’s Exempt?
Under Division 296, which governs this policy, certain high-earning public officials are exempt, including:
- Politicians and public servants with defined benefit schemes
- State officials with constitutionally protected super funds
- Commonwealth and Territory judges
So while everyday Australians may face this new tax, some of the wealthiest individuals in government could avoid it entirely.
Final Thoughts
Many voters may not be aware of the full impact of this policy. If passed without changes, even the middle class could find themselves subject to what feels like an inheritance tax.
About Chan & Naylor
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Disclaimer
This article serves as general information only and may not account for the unique circumstances of individual readers. For personalised and strategic solutions tailored to your specific situation, we invite you to seek professional advice from Chan & Naylor. Our highly experienced team is dedicated to helping you navigate the complexities of Australian taxation, ensuring that your financial strategies align with the latest regulations. Contact us today to embark on a path of informed and customised tax planning for your property investments.
