Why the Government’s Super Tax on Unrealised Gains Should Alarm Every Australian Investor
Key takeaways
The federal government proposes taxing unrealised capital gains in super accounts over $3 million at 30%, doubling the current 15% tax.
This means being taxed on asset value increases—even without selling, earning, or receiving any income from them.
Get advice before making any moves—especially before altering super structures.
Imagine being taxed on the value of your assets even if you haven’t sold them.
Sounds like fiction?
Well, it’s not.
It could soon be policy.
Australia’s federal government has proposed a controversial new tax—one that could see unrealised capital gains on superannuation balances above $3 million taxed at 30%.
Now, at first glance, this might sound like a Robin Hood-style tax on the rich.
After all, $3 million in your SMSF is a lot of money, right?
But let’s not fall for the political spin.
This proposal isn’t just about “the wealthy, it’s about changing the rules of the game in a way that could eventually touch every Australian trying to build long-term wealth.
And it sets a dangerous precedent that investors, especially property investors, can’t afford to ignore.
What’s actually being proposed?
Under the current system, earnings in superannuation funds are taxed at 15%.
The Labor government wants to double that rate to 30% for any portion of a super balance exceeding $3 million.
So far, fair enough—targeting high balances is politically palatable.
But here’s the kicker: rather than taxing actual realised earnings—money you’ve received from selling an asset, collecting rent, or receiving dividends—the proposal includes taxing unrealised capital gains.
That’s right: you could be taxed on the increase in value of your assets, even if you haven’t sold them, haven’t cashed in, and haven’t made a cent.
And if those values drop in the following year?
You don’t get a refund—just a “tax credit” you may or may not use.
Why this should worry every investor (even if you don’t have $3 million in Super)
1. You’re being taxed on money you don’t have
Let’s face it—most property investors don’t have piles of cash sitting around waiting to pay tax bills.
Their wealth is locked in appreciating assets.
Taxing gains that haven’t been realised forces investors to either sell assets, borrow against them, or drain other parts of their portfolio just to pay the ATO.
It’s financial distortion at its worst.
And it punishes those doing the very thing the government says it encourages: saving for retirement.
2. This could set a precedent beyond Super
This is a fundamental shift in Australia’s tax philosophy.
It cracks open the door to taxing unrealised gains in other areas, like investment properties, shares held outside super, or even business assets.
If taxing paper profits becomes “normal,” how long until it creeps into other parts of the economy?
Until now, taxes have always been levied on realised gains—actual income or profits.
This proposal changes that bedrock principle.
Sure, the family home might be exempt (for now), but what about investment properties?
In my mind, it’s a slippery slope.
And once the infrastructure for taxing unrealised gains exists, it becomes much easier to broaden its scope.
3. It’s a tax on inflation—and it will hit more people over time
Here’s something that hasn’t been widely discussed: the $3 million cap is not indexed to inflation.
That means more and more Australians will find themselves caught in this tax net over the next decade—even those who wouldn’t consider themselves “wealthy.”
Many property investors with self-managed super funds (SMSFs) are already near or above this threshold.
As property values rise and super balances grow, middle-aged professionals, small business owners, and dual-income households could all get swept in.
A cynic would say that this “bracket creep” is deliberate.
It enables the government to broaden the tax base without requiring new legislation.
4. It undermines investor confidence
This move appears to be driven by short-term politics rather than long-term policy.
It sends a dangerous signal to investors: that the rules can be changed mid-game, and that success may be punished.
Australia already has one of the most progressive tax systems in the developed world.
The top 10% of income earners pay nearly half the total income tax collected.
This proposal now targets individuals who have worked hard, invested wisely, and adhered to the rules.
The unintended consequence?
Investors may decide it’s no longer worth taking the risk.
That means fewer people starting businesses, investing in property, or contributing extra to super—all things the economy desperately needs more of, not less.
5. It will force asset sales or borrowing to pay the tax
Let’s say your SMSF holds a couple of investment properties that have appreciated in value.
On paper, you’ve made $400,000 in capital gains.
Under this proposed policy, you’ll be taxed as if you’ve actually pocketed that amount, despite not having sold anything.
That puts investors in a bind:
- Do you sell assets just to pay tax?
- Or do you borrow against those assets and take on unnecessary risk?
- Or do you start pulling money out of your Super to meet tax obligations, defeating the whole purpose of long-term compounding?
This approach punishes those who followed the rules and built wealth slowly and responsibly.
6. It creates complex valuation nightmares
Another practical issue here is how unrealised gains are calculated, particularly on illiquid assets like property or unlisted shares.
Unlike listed shares with a clear market price, how do you accurately value:
- An apartment block?
- A small business owned inside a Super?
- Art, collectibles, or farmland?
The ATO would need to implement some form of annual valuation regime—an administrative nightmare for both investors and the tax office.
And as we’ve seen before, arbitrary valuations lead to disputes, inconsistencies, and injustice.
But isn’t this just about ‘rich people’?
Some argue this is just about making the tax system “fairer.”
But fairness depends on where you stand.
According to Treasury, just 80,000 Australians are expected to be affected at first.
But that’s today.
In 5 or 10 years, without indexation, it could be hundreds of thousands, especially those who’ve been prudent, invested in property, and diligently contributed to super.
In the longer term, it is likely that everyone will be caught by this legislation, so this is just the beginning.
And remember: these same property investors already pay income tax, capital gains tax, GST, land tax, and stamp duty.
They’re not dodging their obligations—they’re being squeezed harder each year.
The Super System is being undermined
Australians were encouraged to fund their own retirements and take pressure off the age pension system.
Superannuation was meant to be a safe, long-term vehicle for wealth creation, with stable rules and modest tax incentives.
Now that system is being redefined by stealth.
Once the government establishes the infrastructure for taxing “paper gains”, it becomes far easier to expand it.
The current attack on “wealthy retirees” is just step one.
My concern is – who’s next?
What can investors do?
While we can’t control tax policy, we can control our strategy.
Here are some practical moves to consider:
- Diversify your ownership structures: SMSFs are just one vehicle—consider discretionary trusts, companies, and personal ownership after receiving appropriate professional advice.
- Revisit your retirement planning assumptions: $3 million might not go as far as it used to, especially if it’s being taxed heavily each year.
- Stay politically aware: Policies like this are often trial balloons. The more resistance they face from informed citizens, the more likely they’ll be revised or scrapped.
- Get strategic advice: Cookie-cutter advice won’t cut it anymore. Now more than ever, investors need guidance from strategic wealth advisors—not marketers or product pushers.
Some final thoughts
This proposal isn’t just about super.
It’s about the future of tax policy in Australia. If we start taxing paper gains now, what’s next?
- Will investors be penalised for holding assets that appreciate?
- Will we see a retreat from long-term investment thinking?
- Will trust in super—and the broader tax system—erode further?
Smart investors should be vigilant.
This is more than just a “rich retiree” issue.
It’s a wake-up call.
Don’t wait until it’s too late to restructure your affairs.
A word of caution, do not just jump in and withdraw from your super as there is time, and you need to speak to a specialist SMSF Financial Planner who will take your specific circumstances into account and plan any changes with you.
And let’s not allow the government to quietly rewrite the tax rules under the guise of fairness.
After all the sceptics in me wonder why many politicians, public servants and judges will either be exempt or are not currently caught in the proposed legislation.
