 By Paul de Klerk Investment Specialist (FSP110367) Need to speak to Paul for personalized guidance? Click here.  The Australian Labor Party, having won the 2025 federal election, has proposed a policy to tax unrealized capital gains on superannuation accounts with balances exceeding $3 million, set to take effect from July 1, 2025. This policy, part of the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023, doubles the tax rate on earnings from 15% to 30% for the portion of superannuation balances above $3 million. Critically, it includes unrealized capital gains—gains in asset value that have not been realized through a sale—in the taxable earnings calculation. Here’s a breakdown of the policy and its scope: Key Features of the Policy 1. Tax on Unrealized Gains: • Unrealized capital gains occur when an asset’s value increases but the asset remains unsold. Under this policy, the increase in value of assets held in superannuation accounts over $3 million is taxed annually, regardless of whether the assets are sold. • Earnings are calculated as the difference between the superannuation balance at the end of the financial year and the start, adjusted for contributions and withdrawals. This includes both realized and unrealized gains, taxed at 15% for the additional 15% rate (total 30%) on the portion above $3 million. • Losses can be carried forward to offset future tax liabilities, but there’s no refund for taxes paid on gains if the asset’s value later falls. 2. Threshold and Impact: • The $3 million threshold is not indexed to inflation, meaning more accounts will exceed it over time as asset values rise. Estimates suggest it initially affects about 80,000 accounts (0.5% of superannuation accounts), but over time, it could impact over 500,000 Australians, including 204,000 under 30, as balances grow. • The Greens have pushed for a lower $2 million threshold, which could affect 1.8 million Australians long-term if adopted in a hung parliament, though Prime Minister Anthony Albanese has ruled out lowering the threshold. 3. Revenue Projections: • The Parliamentary Budget Office estimates the tax will raise $300 million in its first year, growing to $2.4 billion by year four and nearly $7 billion annually within a decade. Application to Asset Classes: The policy applies to all assets held within superannuation accounts above the $3 million threshold, including: • Property: Real estate, such as commercial properties, residential rentals, or farms, held in self-managed super funds (SMSFs) is included. Farmers are particularly concerned as land values can exceed $3 million, and illiquid assets may force sales to cover tax bills. • Equities: Listed shares (e.g., ASX stocks) and unlisted shares in private companies are subject to the tax on their unrealized value increases. • Other Investments: Assets like infrastructure, venture capital, debt securities, and loans held in super funds are also included. However, less than 3% of high-balance funds are invested in volatile or illiquid assets like venture capital, according to Assistant Treasurer Stephen Jones. • Defined Benefit Schemes: Public sector pensions (e.g., judges, politicians) with notional cash values above $3 million are included, addressing fairness concerns. The tax does not currently extend beyond superannuation to other asset classes like personal real estate (e.g., family homes), family trusts, or non-super investments. However, critics, including investor groups and business leaders, fear it sets a precedent for broader application, especially given the Greens’ influence and the lack of indexation. Some speculate it could eventually target family homes or other assets, though Labor has not confirmed such plans. Criticisms and Concerns • Unfairness: Taxing unrealized gains is seen as a departure from traditional tax principles, where capital gains tax (CGT) is only levied upon sale. Critics argue it taxes “paper gains” that may never materialize if asset values fall. • Economic Impact: Business leaders like Geoff Wilson and Brian McNamee warn it could deter investment in startups and small businesses, as SMSFs are a key capital source. Up to $25 billion may be withdrawn from SMSFs to avoid the tax, potentially inflating property prices or reducing venture capital. • Administrative Complexity: Valuing illiquid assets like farms or unlisted shares annually is challenging and costly for the Australian Taxation Office and super funds. • Liquidity Issues: Holders of illiquid assets (e.g., farms) may need to sell to pay tax bills, disrupting long-term investment strategies. • Precedent Setting: The policy is labeled a “Trojan horse” by critics who fear it could expand to other assets or lower thresholds, especially if Labor relies on Greens’ support. Defence from Labor • Fairness: Treasurer Jim Chalmers and Albanese argue the policy targets only the wealthiest 0.5% of superannuation account holders, reducing overly generous tax concessions while preserving concessions for most. • Pre-existing Taxes: Assistant Treasurer Stephen Jones claims unrealized gains are already taxed in Australia (e.g., land tax, APRA-regulated funds), though critics dispute the scale and equivalence. • Revenue for Public Good: The tax aims to fund public services by capturing revenue from high-wealth individuals, with minimal impact on “middle Australia.” Political Context • The policy has been contentious, with the Coalition, led by Peter Dutton, branding it a “quasi-inheritance tax” and a broken promise from Albanese’s 2022 campaign claim of no super changes. • The Senate blocked the bill in 2024, and its passage depends on the new parliament’s composition. Labor needs Greens and crossbench support, which may pressure concessions like a lower threshold. • Public sentiment on X reflects outrage, with users calling it “criminal” and “outrageous,” fearing it taxes unsold assets and could expand beyond super. Does It Apply to All Asset Classes? No, the tax is currently limited to assets within superannuation accounts exceeding $3 million, covering property, equities, and other investments held in these funds. It does not apply to assets outside superannuation, such as personal homes, non-super investments, or family trusts. However, the lack of indexation and potential Greens influence raise concerns about future expansion to other asset classes, though no concrete proposals exist. Critical Perspective The policy challenges established tax norms by taxing potential wealth rather than realized income, raising philosophical questions about fairness and economic incentives. While Labor frames it as a targeted measure for the ultra-wealthy, the lack of indexation and precedent-setting nature fuel skepticism about its long-term scope. Historical attempts to tax unrealized gains (e.g., Norway, US proposals) have led to capital flight or policy reversals, suggesting risks Australia may face. Conversely, supporters argue superannuation tax concessions disproportionately benefit the rich, and this corrects an imbalance without affecting most Australians. The policy’s success hinges on implementation details and political negotiations, which remain uncertain post-election. So, at least for now, perhaps it’s best to keep your Kiwisaver invested in New Zealand before transferring it to Australia?  PAUL DE KLERK
Paul de Klerk (FSP110367) is a Kiwisaver and investment specialist working for the Financial Advice Provider known as De Klerk Business Services Ltd (FSP1105978). Nothing in this article should be considered as personal financial advice. If you need personalised investment advice, speak to Paul for free at www.pauldeklerk.co.nz/contact. For a disclosure statement visit www.pauldeklerk.co.nz/disclosure Comments are closed.
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