Budget reveals Labor pushing ahead with tax on unrealised capital gains for superannuation
It’s a controversial policy dubbed an “economy killer”, but one detail tucked in Anthony Albanese’s “cost of living” budget reveals Labor is full steam ahead.
Economy
Don't miss out on the headlines from Economy. Followed categories will be added to My News.
It was one of Kamala Harris’ most controversial policies that even one of her most ardent supporters called an “economy killer” — but Tuesday’s budget reveals Labor is full steam ahead on taxing unrealised capital gains.
The proposal, first announced in the 2023-24 budget, would impose an additional 15 per cent tax on unrealised gains on superannuation balances over $3 million.
In the budget forward estimates it reveals Labor expects to tax an extra $9.7 billion from superannuation funds over the five years from 2024-25 to 2028-29, compared to what was forecast in MYEFO.
“The upgrade to superannuation fund taxes reflects higher-than-expected current year collections, higher contributions due to the strength in employment and an increase in tax from earnings on investments,” the budget says.
“Superannuation fund taxes are highly volatile from one year to the next, primarily due to year-to-year changes in tax from earnings on investments and the consequential impact on the timing of tax payments.”
It’s that line — “earnings on investments” — that has raised eyebrows.
MORE: ‘Damage’: 100% tax is the end of Aus housing
Labor’s controversial plan has been stalled in parliament since last year, with the Coalition and Senators Jacqui Lambie and David Pocock, among others on the crossbench, refusing to support the legislation.
“People need to understand the ludicrousness of taxing unrealised gains,” said Wilson Asset Management founder Geoff Wilson.
“It’s like them putting a tax on the value of your house each year that you have to pay but you’ve got no intention of selling. The risk is they put it in on super then they move it to other areas. To me it’s potentially the thin end of the wedge.”
Normally capital gains are taxed only when an asset is sold.
But Labor’s proposal would change how superannuation is taxed by calculating “earnings” to include the change in total superannuation balance over the year, with adjustments for withdrawals and contributions.
Treasurer Jim Chalmers has previously claimed doubling the tax rate was a “modest adjustment” that would make superannuation “more sustainable”.
If the $3 million cap is not indexed to inflation, more than 500,000 taxpayers could eventually breach the threshold over their lifetime, including 204,000 Australians under the age of 30, according to modelling by the Financial Services Council.
MORE: Can you use superannuation to buy a house?
In an example given by Treasury, a woman who has a superannuation balance of $4 million at the start of the financial year which rises over 12 months to $4.5 million would, under this definition, have made $500,000 in “earnings”.
As she is $1.5 million over the $3 million threshold, she would be taxed an additional 15 per cent on one third of these earnings.
Assuming she made super contributions of $23,375, she would then pay tax on one third of $476,625 — or a total of $23,829.
Mr Wilson said the budget papers made it clear Labor had no intention of abandoning the policy. “The election will decide,” he said.
“Australians need to stand up for what’s fair and taxing unrealised gains is taxing a profit you may never receive. It’s unfair. It’s going to affect a lot of farmers, small businesses, entrepreneurs.”
A similar proposal became a major flashpoint during last year’s US election.
Former President Joe Biden first floated a 25 per cent tax on unrealised capital gains for ultra-wealthy Americans in 2022, with the policy also supported by Ms Harris after she became the Democratic candidate.
But the idea of changing a fundamental principle of how capital gains were taxed sparked widespread alarm among economists and investors about the potential unintended consequences.
Billionaire Mark Cuban, one of Ms Harris’ most high-profile business allies, dubbed it an “economy killer” and claimed she did not support taxing unrealised gains, forcing the Harris camp to insist she still did.
Mr Wilson said the policy had “put and end to the Democrats” and had been a “disaster” in Norway after it was implemented. “All of the technology entrepreneurs have left,” he said.
He added the impact on Australia’s $4.2 trillion superannuation sector would be “enormous”.
“Why would you take any risk in your super fund?” he said.
“Australia was built and thrived on risk capital. Why would you take any risk that you might have to pay tax on something you can’t afford to pay tax on? It’s incredibly negative for corporate Australia, for capital markets, for innovation.”
SuperAPI co-founder Ben Styles told Financial Standard it was disappointing to see that the government planned to go ahead with the proposed 30 per cent tax rate.
“The $3 million cap, unindexed, is a sneaky ‘tax on young people, tomorrow’ that is dressed up as a ‘tax on rich people, today’,” he said.
“The deceptive tax grab that borrows from young people’s future by ignoring that in 40 years when today’s 25-year-olds are retiring, $3 million will not be considered a very high balance.”
A number industry groups previously raised concerns in submissions during the draft legislation consultation process.
The Financial Services Council said taxation of unrealised capital gains was “bad policy that will impact a range of individuals with illiquid assets”, while the Tax Institute warned it was “rife with issues”.
Accounting giant Deloitte said taxing unrealised gains in the manner proposed was “a concerning path for the government to take” that would “place a significant financial burden on many people, including many small business owners and primary producers with significant real property in their superannuation funds”.
The Business Council of Australia pointed out that if a taxpayer “has an unrealised gain that reverses and they then exit the superannuation system, they will not have the opportunity to recover the tax they have already paid on the unrealised gain that never eventuated”.
Large industry and union funds had backed the idea, however.
“Concerns have been raised by some stakeholders that the proposal will result in the taxation of unrealised gains,” AustralianSuper said in its submission.
“The government may wish to consider making clear … that this is an exceptional approach and intended to be limited specifically to this measure.
“However, we note that in relation to the existing 15 per cent tax that superannuation funds pay on investment earnings, large APRA-regulated superannuation funds already typically incorporate tax on an accruals basis. This includes realised and unrealised capital gains tax liabilities.
“Members’ superannuation balances reflect crediting rates, which are determined daily. These are net of the tax superannuation funds currently pay on investment earnings.”
Speaking to ABC Radio on Wednesday, Shadow Treasurer Angus Taylor reiterated the Coalition would not support taxing unrealised capital gains.
“That’s moving down a pathway we simply won’t support,” he said.
Originally published as Budget reveals Labor pushing ahead with tax on unrealised capital gains for superannuation
Trump D-day to shake up campaign
Voters will be watching Anthony Albanese and Peter Dutton closely this week, with another round of Trump tariffs set to shake up the campaign.
Surprise reason holidays to Bali are cheaper
Holidays to Bali have become cheaper this year — and Aussie travellers have Donald Trump to thank for the boon.