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Industry calls for bipartisan commitment to rule out taxation of unrealised gains
The call follows the Albanese Government’s failed attempt in the last term to introduce a new tax on unrealised superannuation earnings via the controversial Division 296 legislation – a first for the Australian tax system, and a proposal that remains official Labor policy.
With Australia’s debt projected to soar beyond $1.2 trillion, there are growing fears that other investments– including the family home, investment properties, private trusts, farms or financial instruments – could be next.
This concern has brought together the SMSF Association, the National Farmers Federation (NFF), the Council of Small Business Organisations Australia (COSBOA) and the Family Business Association (FBA) in opposition to the Division 296 proposals.
“Let’s be clear: taxing someone on paper gains they haven’t received a cent from is not reform – it’s confiscation,” the industry coalition says in a joint statement. “It punishes aspiration, destroys liquidity, and turns volatile market movements into tax bills.”
The absurdity of taxing paper gains is laid bare with the recent turmoil in investment markets, say the combined associations. It shows just how easy it is for a paper gain in one period to be wiped out in the next, leaving the investor with a tax bill for an investment gain they never received.
While both major parties have ruled out changes to negative gearing – recognising the political and economic damage such a policy would cause – no such commitment has been made on taxing unrealised capital gains. With Labor’s Division 296 legislation still on the table, the threat remains live and dangerous, say the combined associations.
“Division 296 isn’t just a bad policy – it’s a dangerous precedent. Once taxing unrealised gains becomes embedded in superannuation, it opens the door to expansion across the entire tax system,” says Peter Burgess, chief executive officer of the SMSF Association.
“Once you cross the line and start taxing gains that haven’t been realised, the entire tax system is up for grabs.”
The associations say the risk is heightened by the likelihood of a hung parliament, which could see the government relying on Greens or independent MPs pushing for even harsher versions of the tax. The Greens, for instance, want to lower the threshold, dragging in thousands more Australians – including those who’ve simply had their superannuation grow over time, say the industry bodies.
International precedent is damning, says Burgess. Attempts to introduce similar taxes in the United States were scrapped after facing fierce economic and legal backlash. Experts agree such taxes are unworkable, unfair, and damaging to investment, innovation, and long-term growth.
“Australia has a proud history of rewarding effort, enterprise, and prudent investment. A tax on unrealised gains turns that on its head. It punishes people not for what they’ve earned, but for what they might earn – and that’s a road no country should go down,” says Burgess.
Nicholas Ali, head of technical services at Neo Super, describes Division 296 tax as the “personification of the law of unintended consequences, taxing a paper gain for an ever-increasing number of superannuants, while ignoring concerns – and solutions – put forward by industry.”
Ali is particularly concerned about the lack of indexation in the proposal, which means more super fund members over time would pass the $3 million balance threshold and find themselves subject to Division 296 simply because their assets appreciated.
Critics are also perturbed that as proposed, it would be the member’s personal responsibility to pay the Division 296 tax, while many may not have sufficient cashflow outside of super to do so. While members can choose to release money from their super fund to cover it, this is not always ideal.
Some fund members could be effectively forced to sell large, illiquid assets (like property) just to cover their tax liability – something that could seriously undermine long-term investment strategies.
“The whole proposal set an alarming precedent in Australia’s taxation policy. This legislation could have far-reaching consequences, not just for the superannuation sector but for other tax policies more broadly,” says Ali.
The industry coalition is calling on both major parties to follow the precedent they’ve set on negative gearing: rule out any tax on unrealised gains, in any form, for any asset class.
