New super tax may be delayed or, even better, overhauled completely

It is now increasingly likely the new tax will be indexed for inflation to ensure its passage in parliament with the additional possibility the decision to include unrealised gains may be reconsidered.

Known as Division 296, the mechanics behind the tax were to get off and racing on July 1, taking this current financial year as the basis for revenue collection for when the tax officially started in July 2026. Since we are already five weeks into the financial year, that timetable is now widely seen as unrealistic.

Even though Treasurer Jim Chalmers has been adamant throughout recent months that no change will occur to any aspect of the legislation, speculation of a review intensified when the legislation was not put before the current sitting of parliament.

While investors and advisers have widely accepted the principle of a higher tax on super for very wealthy Australians, the renewed debate is expected to centre on the mechanics of the new tax, especially the possibility of an alternative to the controversial concept of taxing unrealised (or paper) gains.

SMSF Association chief executive Peter Burgess tells The Australian’s The Money Puzzle podcast that he wants the tax deferred by at least 12 months.

“This will give the government the opportunity to sit down with the industry and talk through other ways about going through this change,” he says.

As it stands, the planned change is for a new tax of 15 per cent to be applied on earnings on amounts above $3m. It is to be applied individually and bills relating to the tax are to be paid personally and annually. The tax is to be set on realised and unrealised movements in asset values.

However, there is to be no compensation for unrealised losses. Rather, there is only the ability to carry forward the losses to be set against future profits in a manner similar to capital gains tax bills.

Among the most prominent alternatives is the notion of a ‘hard cap’ which means that any money beyond a certain amount must be removed from the superannuation system entirely.

Similarly, there have been suggestions the government could apply a deeming rate – a technique similar to that currently used for pension access where the government assumes or ‘deems’ how much a retiree has earned on their investments inside a year.

With more than 1.1 million self-managed super fund operators being the key target for the tax, along with some high-balance members of larger funds, Burgess says: “We’ve been against this tax since day one and we’ll keep advocating against it for as long as we can.”

Tax on unrealised gains is seen as particularly unfair to business owners, start-up investors and farmers. It is also biased against investors with a dependence on illiquid assets such as property where they may struggle to managed their affairs with the same efficiency as investors who are mostly in shares or listed securities.

But the industry is resigned to some form of new super tax hitting wealthier investors.

“Regardless of late moves by the Treasurer, we have to accept this new tax is on its way,” Sonas Wealth managing director Liam Shorte says.

“I don’t think we should even assume it will be delayed. What investors need to do is consider its consequences for themselves and their families. It’s time to consider family trusts and other tax strategies that can be used instead of super.”

As the government mulls the final design of the tax, advisers have highlighted a string of unintended consequences if unrealised gains are introduced into the super system.

Among the repercussions for those in the tax net will be franked dividends, where the tax will capture the increase in value of all money in an individual’s super account each year, and therefore franking credit refunds will be included in calculating the annual change in assets.

There are also repercussions for inheritance. In an unlikely twist, the mechanics of the tax threaten to leave those who inherit super with a double sting where unused tax credits lapse but capital gains tax obligations remain in place.

But politically, the biggest issue for the government is the danger that the new tax will ultimately affect a huge number of working-age Australians who may turn away from the super system based on apprehension that super taxes are forever being amended for political purposes.

The Australian this week reported there have been more than 70 significant rule changes to superannuation since compulsory employer contributions began in 1992.

The government initially estimated only 80,000 would be affected by the tax. Yet the Financial Services Council estimates more than 500,000 people would be impacted by the tax by the time they reach retirement without any indexation.

Between the political risks facing the government and the nightmarish bureaucratic effort it will take to introduce a super tax based on unrealised gains, a return to the drawing board on the super tax will be welcome.

As fund manager Geoff Wilson told The Australian earlier this year: “Anything would be better than what’s on the table.”

This article first appeared in The Australian as New super tax may be delayed or, even better, overhauled completely