The case for the $3 million super tax

YOU are ALL missing the real issue. Why all of this talk about taxing unrealised gains?

Instead we should be asking the simple question of why are we being taxed on our savings? Remember, they are forced savings. And now we have to pay tax on unrealised gains? What banana head marxist dreamed this rubbish up? Desperate people in need to find new ways to fund their cabal.

We are already taxed on our income, on our consumption, on health care, on imports, obtaining licenses and permits, council rates. Why is it that governments always want to invent new ways to steal from us?

The answer to this tax is NO NO NO NO. I'm leaving this country to a place where they respect individual property and people's rights to live their lives the way each individual wants to. If you want to live in an increasingly banana republic stay with all the lefty losers who think that government intervention into people's personal lives is the way to run a country....into the ground. Argentina and El Salvador kicked the commies out. But Australia has voted them in. If you know anything about economics, find out what Gresham's law say. 

There are many hysterical and self interested comments in this thread. The crux of which relate to the ‘unfairness’ of taxing unrealised gains.

Council rates are property taxes levied by local councils on homes and businesses to fund essential services and infrastructure. They are based on a calculation of capital value - no transaction has taken place to realise a gain or loss when rates are levied.

Taxing unrealised gains is in fact perfectly common place, normalised and acceptable.

“Taxing unrealised gains is in fact perfectly common place, normalised and acceptable.”

As mentioned elsewhere in this thread the suggestion that the proposed tax is no different to the way local councils tax unrealized gains via annual rates (which are based on unrealized valuations) is flawed because council rates are generally set a very low level (typically fractions of a cent in the dollar), are only intended to raise a relatively small amount of revenue to pay for things such as rubbish collection, road maintenance, libraries etc. and hardly anyone needs to sell their house to pay their annual rates.

The proposal to tax unrealized gains is very different because it proposes to tax changes in value of an asset at much higher rates (up to 15% in some cases) which may lead to a forced and ill timed sale of the asset to fund the tax. To achieve this it will look at the “traded value” of an asset such as shares on only two particular days. However those values can change dramatically in the space of a few days eg. BEN shares traded over $13 in mid-February but were only worth only $11 two days later and little more than $10 in early April.

So the question for those that consider that taxing unrealized gains is fair and reasonable (apart from the problem of funding the tax given that no money has actually changed hands) is: what is the fair value of the asset for the purpose of paying the proposed tax bearing in mind that the value may drop dramatically between 30 June and the date that the tax is due to be paid, and there is no mechanism for obtaining a refund even if the asset/shares never recover.

I forgot to mention that after paying tax on the unrealized gains at up to 15%, capital gains tax (CGT) will also have to be paid when the same gains are actually realized upon the sale of the asset. In other words those same gains will be taxed TWICE, once by the proposed tax BEFORE the gains are realized and again via CGT AFTER they are realized or sold. CGT liability occurs whenever an asset is sold for more than its purchase price with some exclusions such as motor cars which typically fall in value so governments in their wisdom exclude them from CGT because nobody wants a share of a falling asset.

Considering the merit of this argument, it’s still commonplace, normalised and acceptable… in the context of the rate being acceptable? Then the rate is the moot point and we agree that taxing unrealised gains is commonplace, normalised and acceptable.

“Then the rate is the moot point and we agree that taxing unrealised gains is commonplace, normalised and acceptable.”

There exists a fundamental difference between using the rateable value of a property as a measure of PROPORTIONAL VALUE and to using it to tax UNREALIZED GAINS.

In the first case a local council aims collect revenue across the totality of ratepayers. The measure of unrealized GAINS is not used to tax the unrealized gains but rather is used to calculate the PROPORTION or share of the revenue that is to be collected from each taxpayer. The actual measure of unrealized gains is immaterial because irrespective of whether properties go up or down in value, the PROPORTIONS of those values will remain about the same so contributions will be largely unaffected.

In the second case the actual measure of (unrealized) GAINS is material because Div 296 proposes to tax “earnings” which may include paper GAINS. However if the values of the underlying assets fall after the tax is collected the paper gains may evaporate entirely or turn into paper losses meaning that the tax should never have been collected. Most economists would agree that this violates a fundamental principle of taxation that no tax should be collected if there is no GAIN.

Just like global multinationals paying zero tax here by offshoring profits is normalised.

Maybe you read Marx and reckon central governments exist to solve everything. Why should the hard working be subsidising the rest of Australia? If the Labor government needs money, which is extracted from the income producing portions of society, well maybe they should instead subsidise all of these activities out of the politician's own wallets, since it is they that want these policies. I just hope you Steve and Harry are more than happy to fork out money to government thieves for gains that aren't realised when you top the $3M threshold that is not indexed. Soon everyone will be paying for an unrealised capital gains tax, even the poor, that you appear to support.
Government should never be allowed to spend money that the people never voted for. We have a flawed system of government and we should follow the Swiss style, where every citizen votes on particular issues.

The Division 296 tax is a trojan horse, designed to catch some now, but all later.
Deceive us by claiming only 0.5% of super account holders (just 80,000), will be taxed. Not for ever.
Mislead us into thinking that taxing the 'excessive' savings of the old, the wrinkly and the rich (who’ve worked decades longer) is right and will generate a flow of goodies and cheaper housing. It won't.
Use the old trick of envy and greed, combined with divisive class politics to turn young against old.
Don't worry about them. The old. The wealthy. You deserve their savings.
But one day Gen Ys, Millennials, Gen Zs and the yet unborn, will also be old, wrinkly and richer and their superannuation savings will be pushing through the unindexed threshold. Then they too will be paying this regressive tax on the unrealised capital gain of their asset value. Assets accumulated over a working life, to provide for their own retirement, to avoid reliance on an age pension, to avoid being a burden on younger taxpayers.
Then they too will wonder why in 2025 some were so envious, greedy, naive, gullible and stupid to be deceived into wheeling in this trojan horse of a tax.

Apparently, according to Labor MP Jerome Laxale today: "Labor’s plan to tax superannuation balances over $3m will be subject to changes in the threshold in the future, accusing the Coalition of making “misleading” claims about the policy.....Tax tables change. These thresholds change over time, and good governments change them."

Sounds like they're getting a little sensitive to the barrage of criticism from many pundits. I'm curious though about the qualification "good governments change them". Seems a long while since we had one of those (from either side of politics) and the C graders in charge now aren't showing much promise!

Should we trust a politician's promise? Is Division 296 a product of good governance?
Wealth industry experts and respected financial media are warning us about the multiple dangers of the Division 296 proposal.
Even independent Senator David Pocock rightfully opposed it.
Superannuation expert Meg Heffron wrote in the AFR yesterday: “ the great evil of Division 296 tax is that it taxes growth now rather than in the future when the investments are sold. So people who invest in things that earn very little income but grow a lot are particularly disadvantaged by this tax.”
As Maggie Thatcher put it: “The problem with socialism is that you eventually run out of other people's money.”

"The Division 296 tax is a trojan horse, designed to catch some now, but all later.."
Yes I also have a concern that the proposed tax on unrealized gains will set a very dangerous precedent for taxing unrealized gains on all manner of assets whenever a government runs short of revenue (how long before principal places of residence over $3m are taxed in this way). Some commentators are already jumping on the "precedent wagon" by suggesting that the proposed tax is no different to the way local councils tax unrealized gains via annual rates (which are based on unrealized valuations) notwithstanding that council rates are generally set a very low level, are only intended to raise a relatively small amount of revenue to pay for things such as rubbish collection, road maintenance, libraries etc. and hardly anyone needs to sell their house to pay their annual rates.

By all means, put a cap on our Super system's TSB. Whether that be $3m, $5m, $10m or even $15m, it can be justified in terms of placing a reasonable limit on our nation's retirement income system.
Let's face it - Div 296 in its current form is driven almost entirely by the incumbent Government and Treasury's objective to raise more tax to feed profligate government spending. To dress up the Government's Div 296 objective as achieving 'sustainability and equity' in Super is akin to putting lipstick on the proverbial pig.
Government spending as a percentage of GDP is at record levels (approaching 28%) and is rising exponentially. Let's focus conversations about sustainability where it matters most for Australia - government spending at all levels, national debt, and falling national productivity.

This new s29615% UNREALISED Capital Gains tax, as currently envisaged, is INEQUITABLE and goes against all TAX PRINCIPLES.

- It Is NOT grandfathered which makes it very UNFAIR to those who have abided by the rules and constraints of Superannuation (ie. both forced and unforced saving) for DECADES and now find themselves hit by an additional tax in retirement. Is the Government going to re-emburse them for those “lost” years when they could have spent the money rather than saved and invested it for later life?
- It is NOT grandfathered which makes it very UNFAIR to anyone who has built up a big balance by realising assets they have elsewhere, paying CGT on those asset realisations, all according to the laws of the time, and then finding that they are hit with an additional tax before they have broken even on the move of funds into Superannuation to simplify their retirement. Is the Government going to re-emburse them for the CGT already paid on their original investment?
- The new tax is forcing a Capital Gains Taxable event NOW on those people who now have to withdraw their funds from Super.
- Franking Credits in Super will be caught by the new tax resulting in the re-introduction of DOUBLE TAXATION of Company earnings. That will act as a disincentive to investing in the Australian Economy because you will be taxed twice on the same income.
- Capital Gains on a particular share in Super will be DOUBLE TAXED, once unrealised and once realised. The unrealised capital gain on a particular share MAY NEVER BE REALISED (eg. if a share prices rises than falls).
- The 15% Unrealised CGT is charged EACH YEAR which significantly increases CGT due to the TIME VALUE OF MONEY. That amounts to a lot of money if you hold that particular share for 10-20 years or more and effectively have to fund holding that share each year (because you have to pay the Unrealised CGT each year).
- Similarly, Capital Losses become worth less in time due to the TIME VALUE OF MONEY.
- As you age and your Capital sum in Super reduces as you make both forced (and perhaps unforced) withdrawals from Super you may end up with capital losses under the new Unrealised CGT that you cannot recoup.
- Super funds will now need to keep additional Cash to pay the Unrealised CGT annually (ie. less money invested in that particular individual’s Pension and in the Economy more generally).
- Less people will opt to re-invest their Dividends in companies as they will need the Cash dividends to pay the new 15% Unrealised CGT. This will retard the growth of some companies as they currently use those re-invested funds to grow.
- Super funds will favour liquid investments so that they can pay the 15% Unrealised CGT.
- Super funds will favour listed investments to avoid annual valuation costs.
- Super funds will shy away from big illiquid investments that help build Australia’s future.
- The new tax is anti-saving and anti-investment, and pro-consumption now. This is NOT good for the long term health of the Australian Economy.
- The complexities of managing investments with this new annual Super tax will increase the bureaucracy and costs of managing retirement savings (a deadweight loss for the Economy).
- More people will end up on the Pension as they live longer and chew through their savings with smaller balances or make investment missteps. Others will NOT even try to work hard and amass the balances of earlier generations as there is now an active disincentive to do so.
- Welcome back to the bad old days of tax schemes and tax driven investment decisions as people resort to more complex tax strategies (a misallocation of resources at the Australian Economy level).
- Managing affairs as you get older and lose your faculties will get a lot more complex.

And so on..............

You will also note how the ridiculously generous Taxpayer funded Government Defined Benefits Schemes - which POLITICIANS, JUDGES and PUBLIC SERVANTS BENEFIT FROM - are EXEMPTED FROM THIS NEW TAX.

WHERE IS THE EQUITY??

According to the AFR, these Schemes have forced the Federal Government to use Taxpayers funds to fund around $20 BILLION in UNFUNDED Defined Benefits Pensions in FY2025 alone. This Annual Cost is growing significantly with each year as Public Service salaries rise, the Benefit is indexed twice a year, and more Public Servants retire (many retire early to enjoy the Benefits).

Disingenuous in the extreme, Talk about the bear being in charge of the honeypot!

We Private Sector people need to understand what is really going on.

A good overview Angus, demonstrates why needs to go back to drawing board. Enjoyably read all 157 comments posted so far and it's clear there's a lot of sensible suggestions from a lot of sensible everyday people with wide-ranging views and an understanding of the subject so it beggars belief that if such a small number of people here can offer sensible suggestions then why is there not an equivalent number of Public Servants who can do the same in Canberra, to get it right?

Exactly Lyn

Could the answer lie in the conflict of interest that resides in the Parliament and the Public Service regarding entitlements to large Defined Benefit Pensions?

Linda, possibly but don't see why when generally people not against new tax so much, rather the absurd way to be calculated. It's clear from comments it is considered convoluted and lacking fairness to all taxpayers whether affected or those not affected but still taxpayers, incluing how DB's are dealt with amongst the disregarded issues. One comment refers to why should person born 1990 expect to have worsened retirement outcome than those born earlier, which is valid. Another considers that a deterrent to future saving for super by young who may save less than current superannuants, and barely enough thus a C/link pension still be paid not improving Balance Sheet. Canberra should at least re- visit what this clever sample of people here has highlighted.

Wow. What a torrent! Who said tax is boring?

Decades from now, our descendants are destined to enjoy a delectable serial thriller called ‘The Devious Division 296’. Co-produced by the exhumed remains of George Orwell and immortal Paul Keating, the coterie of expert commentators will be pro bono insultants (consultants who do not care).

The final episode will be a spoof of the still unfinished reforms in Australia: gift and inheritance tax, exemption of family home for age pension, injudicious carve-outs for public servants, politicians and judges, and the unique utopia of ‘salary sacrifice’ for the privileged.

Reflecting the prevailing state of the nation, the background will feature a banana plantation in the memory of the countless who slipped on the peels strewn everywhere.

Harry Chemay, Meg Heffron, Warren Bird, Noel Whittaker et al will be honourable mentions.

Jim Chalmers will be the beloved villain….

It is clear that some members have traded very well but not very many.Those profits made in their own name would have been taxed heavily.
Place a ceiling on each members fund and have it indexed each year.They would then be taxed in the normal way in their personal activities.
In the pension phase simply add a withdrawl above the mandatory age level withdrawl when the fund increases above a certain level
It would help if the majority of fund members with less than 3 million dollars were left alone and get on doing what they have been doing and the few that have larger than 3 million could be brought into line

What a typically Australian obsession with super all this is!
I suggest the following. I’m a private citizen without big research resources, so I may be misinformed, if so please correct me.
Argument:
(1) Super is a minnow in the context of national tax policy
(2) There are glaring shortcomings in our (non-)taxation of much larger items, like
(a) Woodside’s NW shelf gas exports extended to 2070 virtually untaxed
(b) BHP/Rio selling ore to their “marketing hubs” in Singapore for on-sale to Asian customers at much higher prices so profits are collected in low-tax Singapore not producing country Australia
(c) Coles and Woolworths pay big Australian income tax on profits while Aldi not a cent because profits are removed to Germany or Switzerland or wherever.
(3) QUESTION: Why not tax these foreign entities on huge profits generated in Australia rather than fiddling around with a tiny and already much too complicated super system?

Yes, good point

If you repealed the costello super pension taxation changes (where pension payments became tax free) and put back in place the regime where you were taxed on your super withdrawals, but had a 15% tax offset (to refund for the contributions and earnings tax you already paid) then there would be no need for this additional tax on high balances, and no need for the pension transfer limit (~$2m)

And while you are repealing this bad costello move, you can also repeal the illogical 50% cgt rule and restore the old indexed cost base system (it had a logic, 50% discount has no logic)

"taxed on your super withdrawals": Crowd pleaser.

Just abolish super, Sooth crowd with abolition of Age Pension Means Tests.

The tax on super withdrawals only ever applied to proportion of withdrawal that derived from concessional contributions. That is still the case for death benefits.
The large super funds with $3 million or more didn’t get there by concessional contributions. They needed large non-concessional contributions. So they would pay little tax on withdrawals and they also pay little tax on death benefits now.
With their concessional tax rate, no mandated withdrawals, and little or no death tax, these large accumulation funds in retirement are the estate planning vehicle of choice.

So maybe the change that is required is that the 15% earnings tax continues to be applied to super funds in pension phase, but with the rebate of 15% on the pension actually paid (I know it sounds a bit like taking with one hand and giving back with the other, but it would only affect those with high super balances, which as Jon points out, were from after tax contributions)

"So they would pay little tax on withdrawals and they also pay little tax on death benefits now."

I like to think of large non concessional contribution as "TAX PAID" since many large contributions were likely fruits of incomes taxed at the highest marginal rate meaning that about one dollar income tax was paid for every dollar contributed. Note that the marginal tax rate was at least 60% until the mid 80s when it dropped to 49% and then dropped again to 45% + 2% medicare levy in the mid 2000s. The threshold at which the highest rate applied was only $50k until about 2000.

These large accumulation funds essentially represent the investment of after-tax money. In that sense, these funds are no different to any other investment in shares, property or even the family home which all require the investment of after-tax money.

Super's distinguishing feature and central attraction, remains the concessional tax on investment earnings in accumulation funds that require no withdrawals and can continue to grow until death.

Rather than obsessing about the taxing of unrealised gains in a narrow set of circumstances, a better way to think about Div 296 is as a “soft” cap on super at $3m per person. While a “hard” cap would be very difficult to implement in practice, most agree that $3m in super ($6m for a couple) is more than sufficient for a good retirement (with likely plenty left over).

The effect of Div 296 is that super above $3m becomes a tax ineffective structure compared to others (trust, personal, company) for a growth focused portfolio of investment assets although remains competitive in most cases (but more heavily taxed than previously) for income (or trading) focused ones.

Large, very concentrated “growth” and illiquid SMSFs won’t make sense but did they ever for a vehicle supposed to be providing a diversified source of capital/cashflow for retirement? Wealthy investors that Div 296 targets will be inclined to make such investments in their own name or other tax structures.

Some funds exiting super will be directed to property, especially heavily tax advantaged homes, likely pushing up prices further, which is why broader tax reform is desperately needed. (But hardly likely if the level of opposition this modest reform generates is any indication).

As for indexation, my expectation is the government will wait until the indexed TBC (currently $2m) gets close to $3m and index Div 296 from there.

All up, Div 296 has some fleas but it is far from the disaster many are painting, is a small step in dealing with worsening wealth inequality and an opportunity for smart and unemotional investors (and advisers) to reassess asset allocation across investment structures. (Noting that this proposed change was announced more than 2 years ago and it’s still more than 12 months before the key 30 June 2026 balance date).

Yes, there are a few $3m plus super investors in their 40s and 50s still years from preservation age who lack the flexibility to adjust structures. Those investors can still make some appropriate asset allocation changes and are likely in the top 1-2% by wealth for their age so it’s hard to feel too sorry for them.

Hard to feel sorry for them.
Sounds envious with a touch of too bad for me as long as it’s good for me.
This issue is about being fair to everyone and ensuring it is workable

Not really. I’m over $3m in super and not yet 65 or retired so I will likely be paying the tax for a few years at least. Just not as greedy as some.

Best balanced comment I've read. I agree the likely big picture is that the government wants to wait until the indexed TBC (currently $2m) gets to $3m and index Div 296 from there.

Thanks Dom for what I feel is a fair balanced piece. I have heard of proposed data of taxed amounts and the ceiling will not fall in, and super for amounts >$3m is still in a tax generous environment.

I think the political opponents to this Bill need to put forward sustainable alternatives to ensure the system is sustainable, not just say no.

I have a SMSF and remember sitting in front of TV gasping with glee when Costello announce the 2006/7 tax-free Super world!!! My only surprise is that after hearing Jeromy Cooper (and others) say in ?2008 or 9 that super generous tax concessions could not continue as not sustainable (of which I factored in my overall financial planning), and despite the Morrison’s limits placed in 2017, that generous tax concessions in super has continued. Many of us baby boomers have done very nicely, and it is not unreasonable that the hard working parents of a young family who may never be a secure employee with all those benefits, own their own home, have a quality public school education not forcing our parents to financial break themselves just to get a good education, have much super, need to pay off their uni fees, pay road tolls, private health, and pay high marginal tax which they will see to ensure we all get quality nursing homes, feel resentment about us paying so little on our compounding millions. I feel our generation did well is so many ways - Buffet and many studies talk about the Theory of Meritocracy of how people attribute 100% of their success solely to their skill and sacrifice and none to luck or any other factors.

There needs to be a carrot to encourage aspiration, and the 2019 ALP failed miserably as was just a way of shutting down SMSFs and when one is likely get a higher annual income from the pension than from your savings then it served to encourage many people to not save and ensure they qualified for the pension even if just $1. I advocated for a Super cap which after that you were taxed at company rates which if you did not like you could restructure your finances, and this is in essence a similar approach - as Dom has said, this is a form of ‘soft’ cap.

The SMSF Sole Purpose Test of which the regulations require we write our Strategy and Planning must meet the “fit for retirement”. As Dom points out, illiquid family farms, artwork, high % of property, is unsuitable and I would argue non-compliant, as the fund must have high cash flow from other assets to maintain liquidity as required under the regulations.

I think many Advisors have lead their clients astray by being so focused on exploiting the tax concessions that they have failed to plan for the changes what we all knew were ultimately coming to ensure the super system was sustainable for all who come behind us.

Jon Kalkman has again nailed it--where are the lawyers?

I believe this mode of taxation within an individual's retirement plan is quite insidious and represents a litmus test for the government to determine how much resistance they encounter before expanding the tax net. Now, I am no professionally trained financial wiz, rolling out formulae and examples and fancy acronyms. I am just an honest guy who worked hard, educated himself in many things financial, set up a SMSF, played by the rules, invested (mainly) wisely and well and took risks when considered appropriate to do so and, voila, here I am with a fund balance largely in excess of $3M. I stole from no one to be in this admittedly favourable position.
So if I do nothing, I will essentially be penalised for my thrift, research and entrepreneurship by a government steeped in "us vs them" ideology. This is plain unacceptable.
I don't think anyone has yet commented on the retrospectivity of this Sec296 tax. It penalises success obtained during a period where good investing was actually promoted. Now it is being punished. So what's fair?
Maybe it's oversimplistic, but just freeze fund value as of midnight tonight so no artificial value engineering can be made. That becomes the starting point for increased taxation, in whatever form that may take, as assessed in FY 2026. That seems pretty fair if something must be done with the current system.
Should this be ignored by the passing of the bill in its current parameters, just watch the damage to younger aspirational Australians as people funnel buckets of money into property instead of industry and make the Australian dream into an unaffordable nightmare for our grandkids.

I agree 100% Mark. Yet again the rules are going to be changed retrospectively for some not all. Those on the public purse at senior levels will be exempt! Yet again those "elites" will be OK and will start to walk on their hind legs. (George Orwell)

Hi Mark
I share many of your views and also reached a healthy fund balance thru education which lead to a 40 year+ professional career, a disciplined saving culture born from being raised in a migrant family (also from Communist Poland) and a willingness to invest wisely, spend carefully and take (measured) risks. I also stole from no one, never received a leg up, paid significant taxes on a good income and just like you here I am with a fund balance in excess of $3M. I would dearly love to see some grandfathering for people who diligently played by the rules and constraints but am not holding my breath. I have expressed elsewhere in this forum the many undesirable implications of the proposed div 296 tax but given the mandate the govt considers that it received at the last election I am again am not holding my breath that they will be addressed.

Maintain the rage but accept it is going to happen. Stop the bleat, start the plan. First understand the formula - read Meg's pieces. Understand the key date is actually 30/6/26 and then figure out your options so that Canberra loses:

If beyond preservation age where most of the money will be:
. If the tax is minimal, do nothing
. If substantial, reduce or pull the entire surplus
. Get illiquid assets like property, private equity, unlisted out
. Get volatile small caps out
. Have other investment structures like Trusts ready
. Upgrade your Principal Place of Residence
. Prepay grandkids School fees, maybe their Super
. Lend kids money for offset accounts etc
- Retire early if you can

Task is to model your overall tax and minimise it. As Kerry said ... "any Australian that pays more tax than they have to need their head read. You don't do such a great job of spending it, that I should be contributing extra..." The numbskulls in Canberra reckon they can change the rules, introduce new taxes without a behavioural reaction. They are wrong, the forecast revenue will evaporate

100 percent true

I agree with the sentiments you put forward. Also Kerry was absolutely on the money with what he said. This communist government we are now stuck with will do everything it can to gouge money away from those who earned it, so they can waste it, eg. the Voice. The clown-in-power wasted almost three quarters of a billion dollars on that. Why : because he sees himself as the next Bob Hawke and wants a legacy in line with the image. We have a treasurer who wouldn't know if his rear end was on fire until he smells the smoke, let alone know anything about economics or finance. As for those supporting Div 296 : how do you think those people who will be affected by it , got their money. They worked for it and did without a lot of the niceties to get a balance they can enjoy in their retirement. I see that the biggest support group are the greens who I will bet a largely on social welfare and wouldn't work in an iron lung. So yes maintain the rage and let's get this group of idiots out of office as soon as possible.
BTW: if you don't agree with me, that's fine. If you want to lodge a vindictive response, don't waste your time because I couldn't give a rats.!!

Hi JC, wish Comments had a 'tick' box for Like, had a good belly laugh, thanks & well done.

No way it will raise the funds they expect - in our case it will cost the government income as they are at least getting 15% at present and we are running a business and they are getting all the tax that businesses generate.

Wife has spent all week looking at apartments on the Gold Coast for a second Winter home and withdraw the funds from super.

Just got a quote to value our motel ready for the new tax and it will cost $20k to value all so we can pay a few thousand tax once we have the new apartment and balances are down to $3.2m each.

We have decided we may as well just retire and plan to sell up our business and just spend spend spend rather than pay tax tax tax.

"just spend spend spend rather than pay tax tax tax":

Don't 'Die with Zero', die with Age Pension in sight.

Company tax rate 25% or 30%, investment return 5%, inflation 2.5%, time to termination 30 y, PresentValue $6,000,000, FutureValue at termination $470,000, home $?:
= PMT((1 + (1 - 30%) * 5%) / (1+ 2.5%) - 1, 30, -6000000, 470000)
= $218,099.70 / y

Die in sight of Age Pension

Home owning couple 67+, optimal assets under Div 296 to spend over 30 years and pay 0% income tax:

Super withdrawal;
Disbursement account tax 0%, earnings rate 6%, inflation 2.5%, Total Super Balance $6,000,000, Age Pension Assets cutoff: $1,047,500:
= PMT((1 + (1 - 0%) * 6%) / (1 + 2.5%) - 1, 30, -6000000, 1047500)
= $302,170 / y

Age Pension cutoff fund withdrawal;
Income tax SAPTO tax free $62,004, Age Pension, cutoff: $1,047,500, inflation 2.5%, termination 30 y:
= PMT((1 + (62004 / 1047500)) / (1 + 2.5%) - 1, 30, -1047500, 1047500)
= $34,943 / y

Total spendable;
= $337,113 / y

Die in sight of Age Pension - Enhanced

[ Can run super down to $0 with Age Pension cutoff fund providing sufficient terminal capital. ]

Home owning couple 67+, optimal assets under Div 296 to spend over 30 years and pay 0% income tax:

Super withdrawal;
Disbursement account tax 0%, earnings rate 6%, inflation 2.5%, Total Super Balance $6,000,000, Age Pension Assets cutoff: $1,047,500:
= PMT((1 + (1 - 0%) * 6%) / (1 + 2.5%) - 1, 30, -6000000, 0)
= $322,748 / y

Age Pension cutoff fund withdrawal;
Income tax SAPTO tax free $62,004, Age Pension, cutoff: $1,047,500, inflation 2.5%, termination 30 y:
= PMT((1 + (62004 / 1047500)) / (1 + 2.5%) - 1, 30, -1047500, 1047500)
= $34,943 / y

Total spendable;
= $357,691 / y

Die out of sight of Age Pension, capital intact - IF Div 296 $3M is indexed to inflation.

Home owning couple 67+, optimal assets under Div 296 to spend over 30 years and pay 0% income tax:

Super withdrawal;
Disbursement account tax 0%, earnings rate 6%, inflation 2.5%, Total Super Balance $6,000,000:
= PMT((1 + (1 - 0%) * 6%) / (1 + 2.5%) - 1, 30, -6000000, 6000000)
= $240,646.34 / y

Just in case, Age Pension cutoff fund withdrawal;
Income tax SAPTO tax free $62,004, Age Pension, cutoff: $1,047,500, inflation 2.5%, termination 30 y:
= PMT((1 + (62004 / 1047500)) / (1 + 2.5%) - 1, 30, -1047500, 1047500)
= $34,943 / y

Total spendable;
= $275,589.27 / y

Andrew Leigh is credited with saying: "We are one generation away from being like the USA". The good of the whole nation is a much healthier aim than our number of billionaires.

Good article Harry. I see this tax as a soft attempt to limit the ridiculous subsidies of multi millionaires. I suspect it was severely watered down from what Treasury proposed for political ends. Of course there will be backlash, greed and self interest are basic human emotions. As someone much wiser than me said the future of good democracy is limiting inequity, that is transferring wealth from the rich to the poor without contravening property rights are causing a civil war. This tax is a small step o that path, imo

What’s lost in the debate is that Superannuation is an Individual’s money that they have worked, invested (and perhaps saved) hard to ensure that they are self-sufficient and not dependent on Government in retirement. They have paid tax all the way along – on contribution of funds to Super, on annual Income and on annual Capital Gains in Super, and they will pay an existing TAX ON DEATH of 17% on their Super balance. This new 15% unindexed tax on unrealised gains in Super is additional to all these existing taxes.

Where there needs to be a Focus is on Governments' Defined Benefits Schemes, to ensure that they similarly have their Indexation removed and suffer with additional tax.

There should be a particular focus on the UNFUNDED TAXPAYER FUNDED GOVERNMENT SCHEMES which Politicians, Judges and Public Servants benefit from. Note, unfunded means that unlike Super balances these people did not contribute, or contributed hugely insufficiently, to the Defined Benefit they now receive. Hence the difference has to be funded by the Taxpayer each year. According to the AFR, these Schemes have forced the Federal Government to fund around $20 billion in UNFUNDED Defined Benefits pensions in FY2025 alone. This Annual Cost is growing significantly with each year as Public Servants retire. The youngest Public Servant on these Unfunded Schemes is still only 38 years old and the Defined Benefit passes to their surviving spouse even if they marry a much younger person after they retire (which means that these Schemes could go on for another 100 years). Given that they are indexed twice a year, and Public Servants’ salary packages continue to rise through time, these Schemes will literally impoverish the country if not wound back NOW. Unless they die early, as things stand ALL Politicians, Judges and Public Servants on these Schemes will literally earn more in retirement than when they were working! This leads to generational wealth being passed onto their children because as they age they will not be able to spend the simply huge annual sums of money that they will be paid risk free by Government in retirement – all taxpayer funded.

AND, until the decision makers are treated just like Superannuants there will be constant tinkering with Superannuation, and with that peoples’ retirement lives. So these Government Schemes need to be thoroughly reviewed and re-drawn.

Very well written and so true and why is this never brought up

Brilliant summary Angus.

It would be good to now as to how many DB pensions are currently being paid at $200k pa or more. Can Treasury please produce this for the taxpayer to see? Is that not our democratic right?

In the 2016 Budget Treasury produced 2 examples ( cameos) of the proposed transfer cap limits - both the recipients below would be receiving pensions today that have grown 50% since 2016.

“Cameo - Deepika
In 2017-18 Deepika, a 62 year-old former public servant, receives a pension of $120,000 from an untaxed defined benefit scheme. As she is aged over 60, Deepika's pension is taxed at marginal tax rates, however she is entitled to a capped offset of $10,000 against her tax liability.
Prior to the changes, she would have been entitled to an offset of $12,000.

Cameo — Paul
In 2017-18 Paul, a 65 year-old former academic, receives a pension of $180,000 from a taxed defined benefit scheme. As he is aged over 60, half of the amount by which his pension exceeds $100,000 (that is, $40,000), will be included in his taxable income and taxed at his marginal tax rate.”

Hard to feel sorry for them.
Sounds envious with a touch of too bad for them as long as it’s good for me.
This issue is about being fair to everyone and ensuring it is workable

It is not only multi millionaires afected by these changes , but 16 million plus individuals super accounts will be effected by $350 plus P.A . , with the disallowance of deductability of some fees and charges . I was informed by my sperfund that these changes take effect on 1st July .

"ridiculous subsidies of multi-millionaires":

On July 1, 2017 the superannuation Transfer Balance Cap (TBC) was introduced requiring multi-millionaires to remove all but $1.6M from their Disbursement Accounts (DA) where the tax rate was 0%.

Some or all to Accumulation Accounts (AA) where the tax rate was 15%.

The person with $101.6M in super might then have $100M in AA and $1.6M in DA. To have $100M in AA, they may have made large contributions, possibly with after tax income, when there were no limits or had unusual investing profits.

They could have opted to spend the $100M in AA on buying a home, knocking it down and build a palazzo with a tax rate on notional / imputed rent and capital gains of 0%.

The palazzo might benefit those who demolish / build / maintain it but its primary function is to shelter an owner's capital and possibly grow it at a modest rate.

Whereas $100M invested in AA not only pays 15% tax on earnings but finances businesses which produce goods, services, employment, and, with some skill, results in a profit for the AA owner and eventually beneficiaries of their estate.

Who is subsidising whom? The owner of a seaside shining palazzo paying no tax or the AA investor paying 15% tax on earnings until they decease?

“To have $100M in AA, they may have made large contributions, possibly with after tax income, when there were no limits or had unusual investing profits.”

Between 10 May 2006 and 30 June 2007, you could contribute up to $1 million of non-concessional contributions to your super fund but in subsequent years the cap was never above $180k and is currently $120k. Even if the cap was maintained at $180k per annum it would take more than 500 years to contribute $100M via the non-concessional route. What is more likely is that the extraordinary large balances were generated through investments that produced extraordinary capital gains (this may be one reason why our fearless Treasurer wants to tax unrealized gains) or through running very profitable businesses inside superannuation.

"Even if the cap was maintained at $180k per annum it would take more than 500 years to contribute $100M via the non-concessional route.":

Quite so. 540 y.

Google responds to
. 'What were the limits to voluntary contributions to superannuation before 1991?'
with
. 'Before 1991, when the Superannuation Guarantee was introduced, there were generally no specific limits on voluntary contributions to superannuation.'
presumably because it can not find a document specifying limits.

'No limits' is also my vague recollection.

A person with $100M cash could roll it into super as what became known as non-concessional contributions. Or a lesser amount and grow it to $100M in Accumulation Accouts today.

Prior to the $1million non-concessional contribution period between 10 May 2006 and 30 June 2007, there was no limit on non-concessional contributions.

Harry, few people if any are arguing with the higher tax on balances over $3m. The argument is with the lack of indexation (which you also disagree with) and the unrealised CGT element (which you dismiss). You dismiss this as a non issue because APRA registered funds take it into account in some fashion however you do not address the issue for SMSFs where it is most certainly going to occur under Div 296. The APRA funds have been saying that it is impossible for them to calculate it for individuals. Members with high balances over $3m will be protected by those members with lower balances. Surely you accept that tax of unrealised gains is bad policy and simply wrong apart from being unworkable for many of the SMSFs where, say the family funds in the fund. (what, annual valuations for every such asset - there aren't enough valuers in Australia). Surely Div 296 should be structured to ensure that all animals are equal - there should not be discrimination between identical asset bases depending on particular version of the super system that are used. The government's argument that it doesn't affect many people so who cares does not pass on honest, reasonable test. On this basis, a government could justify confiscating all balances over, say, $10m because it "doesn't affect many people". Finally, the the importance of the Treasury chart is that over the long term, the cost of the retirement system to the public purse including tax concessions and age pensions remains level which it does from that graph. The relative size of the components is irrelevant and misleading unless you wish to use a graph to justify an unreasonable policy as Treasury is want to do. The reason the cost to the public purse doesn't change is because over time the growing tax concessions (bad) are largely compensated for by the reducing costs of pension system (good) as more people can support themselves from super. As Treasury says, the cost of pensions will fall by 0.3% of GDP, while the tax concessions costs increase by 0.5% of GDP, a 0.2% of GDP difference - not exactly an existential crisis given the risk transfer from the public to the private purses. The proposed increase in tax rate for earnings above the $3m limit (which is almost universally if reluctantly accepted) would largely compensate for that without introducing the unrealised CGT element which is been an absolute disaster around the world (eg. Norway which is being much discussed).

They are not indexing the $3m for the same reason they don't automatically index the income tax scales, but do index the beer excise, etc.

You don't want to announce a tax increase (of the beer excise) each year, because you will lose votes

You DO want to announce the increase of the point where marginal tax rates cut in and the $3m figure, because this will get reported as a tax cut (and get you votes)

Its very simple really, as with everything the government (and it doesn't matter which side), they want your votes. Decreasing tax gets them votes, and better still "tax reform" where it looks like there is a tax cut, when in fact there is a tax increase (that's what reform is, it a code word, and now you all know the code, you can object)

Ross, you only need to read the comments immediately above yours to realise that it's not true that hardly anyone is opposing more tax on higher balances. Far too many fail to realise that it's perfectly legitimate for a government to increase taxes, especially when the tax concession being reduced has created an outcome that's too expensive for other taxpayers to keep supporting.

Warren, you are right in these pages. I guess when I said "arguing" I meant arguing on a reasonable basis - ie on the basis of objective arguments. Most of the disagreement is subjective (and I certainly share that objection) but governments have a right to set tax rates - we can always vote appropriately next time. But they must set rates on an equitable basis in lines with fair principles and the unrealised gain aspect is neither fair nor equitable which I'm sure you would agree with.

Hello Shawn,
Perhaps have a look at my submission above. The future of good democracy has many pillars, but a transfer of wealth from the lifters to the leaners is certainly not one of them. That just smacks of envy, doesn't it? One feature of a "good" democracy (I would use an adjective like "well-functioning") is that the voters actually take an interest and understand the offerings of the candidates and their parties. I have dealt with the public for over 3 decades and work on almost every election for the AEC. That is my show of gratitude to a country that values democracy given that I was born in Communist Poland and understand full well the misery that system doles out.
My observation over a long period is that your average punters pay absolutely no attention to detail and are happy to put themselves into either a Labor basket, a LNP basket, or a minor party basket like the Greens who are certifiable political basket cases! There is ample evidence for this view, including so many folk not even recognising pictures of our political heavyweights.
In my case, there is no greed or excessive self interest, just bloody hard work and the liberal use of grey matter. Is that a sin? No fear, I'll be fine regardless. Just be careful what you wish for.
Unless you're happy working for Big Brother, you need wealthy individuals and successful companies to provide jobs and opportunity for others. Eviscerating the "wealthy" is both counterproductive and just plain stupid. 'Nuf said.

“It is estimated that between now and 2062-63, the cost of the Age Pension will reduce from 2.3% to 2% of GDP. Super tax concessions will by then be 2.4%, driven primarily by earnings tax concessions rising from 1% to 1.5% of GDP.”

Except that the tax concessions cost as determined by Treasury, compares the tax actually collected at super tax rates on super income and contributions, versus what would have been collected if ordinary individual income tax rates were applied.

If however, super tax rates were compared to rates that allowed adequately for the compulsory nature of superannuation, and the fact that it is inaccessible for up to decades, then a proper measure would be made and it would be far, far less than the numbers quoted in Treasury reports.

"It is estimated that between now and 2062-63, the cost of the Age Pension will reduce from 2.3% to 2% of GDP. Super tax concessions will by then be 2.4%, driven primarily by earnings tax concessions rising from 1% to 1.5% of GDP.":

Abolish Age Pension Asset Tests and Abolish Superannuation.

Result: happy government.

Another issue with the proposed change is that it may discourage older Aussies from downsizing and rolling excess funds into super. So larger homes occupied by one or two people - not helpful in a housing crisis.

Quite the opposite, it may actually encourage those same Aussies to upgrade their PPR as the only viable shelter left from the socialists currently inhabiting the Canberra bureaucracy.

Exactly the plan

Clearly there remains a significant number of super funds with very generous assets, usually inside a SMSF, that continue to attract very generous tax concessions, that have no mandated withdrawals and therefore may never be used to pay for retirement. That can continue until death where they typically also escape the superannuation death tax. They are the estate planning vehicle of choice.

All retirees have an interest in this issue. Treasury collates and publishes the total tax concessions flowing to super and compares that with the total cost of the age pension, but it never differentiates those tax concessions between member balances. The result is the constant call by some uninformed commentators for increased tax on super, particularly on super pensions which are presently tax-free. All retirees with modest super balances in pension phase, remaining independent of the age pension, would be affected by such a proposal.

I think taxpayers are justified in questioning the level of tax concessions flowing to these funds, but I’m sure the proposed Div 296 tax is the wrong approach.

I think we all need to understand that Australian's have overwhelmingly voted for a Labor socialist government that will always seek to trim the assets of the higher achievers. As stated, this proposed tax will currently affect a small number of those high achievers, that most voters (APRA Super members) will be happy to see trimmed (read 'cut off the tall poppy'). It's cultural, the nation of former convicts relish the thought of stealing from the rich.

And what a beautiful country it is too. Despite whatever its flaws may be, it gave Boomers an opportunity to get rich. Their "skill"? Being born at the right time in the right country and being given the right education from the right family and getting the right job.
Yes, there are of course exceptions to the above. The many wonderful migrants who battled adversity. The entrepreneur who rose from nothing. But how many of those bleating about Div 296 can claim such challenges.
Buffett calls it winning the ovarian lottery. Super was meant to be a way to give lower to middle income the opportunity to save for there own retirement and not live off whatever the pension provides. Not a vault for stashing riches

Harry please consider whether this is optimal policy pathway in your next piece. It's likely to lead to more consensus given Jim's approach is clearly idealogical and exceptional unlikely to lead to the budgeted tax revenue grab.

So in the wash up we're left the a MRRT 2.0 legacy.

If ever there were a competition for the most unjust tax of all time, the Div 296 would be the hands-down winner.

For a start, it proposes to tax unrealised profits. but what happens when no profit is ever realised? And if the $3 million is not indexed it really it really amounts to a reduction each year.
In a husband-and-wife fund, each with balances over 1.5 million, what is apparently not considered is that when one dies and the balance passes to the survivor, the $3 million is immediately breached.
If the government needs more money, it can cut down the billions in wasteful spending, especially in the NDIS.

of course the balance would be breached - there is only one person now needing the retirement income. The sole survivor would have to pay some tax after doubling their nest egg.

“If ever there were a competition for the most unjust tax of all time, the Div 296 would be the hands-down winner. For a start, it proposes to tax unrealized profits. but what happens when no profit is ever realized?”

It’s actually worse than that because it proposes to tax annual uplifts in value rather than uplifts in profit but does not recognize whether that value is higher than the cost of acquisition meaning that the asset may represent an actual loss to the portfolio.

An example of this is BEN shares acquired near their peak (around $17 in 2006) and currently trading around $12. Assuming that the shares move to $13 after one year, $14 after two years, $15 after three years and $16 after 4 years and are then disposed of at a loss, the fund will have incurred a tax liability under div 296 for each of those years notwithstanding that AN ACTUAL LOSS HAS BEEN REALIZED. Unlike provisions under CGT to carry forward the capital loss to be offset against a future capital gain, there appears to be no similar mechanism under div 296 to offset a realized capital loss against future earnings where those earnings include uplifts in value of an asset that is subsequently disposed of at a loss.

No profit, no tax

Alas that's not how its proposed to work because div 296 tax will be assessed in each year that the value of the shares recover while remaining below their purchase price.Bizarrely this amounts to paying tax on an ongoing loss if the magnitude of that loss is smaller than in the previous year. As far as I can tell there is no claw-back provision for the accumulated taxes paid on the loss when that loss is crystallized. By accumulated I mean the taxes paid on the loss in the first, second, third and fourth years while the value of the shares recovered from $13 to $16 but were still below their purchase price.

Thank you for bringing up the comparison between current superannuation limits and the old Reasonable Benefits Limits. When then Federal Treasurer Peter Costello announced the abolition of RBL's Federal budget 2006 ?, I felt I had won lotto. I was able to build up a super benefit significantly above what the old rules would have allowed. It should not be forgotten that Costello was able to do this due to running budget surpluses helped considerably by taxing at high levels as a percentage of GDP. We have enjoyed relatively low taxation within super over the last 20 years. The Federal Budget situation is vastly different than it was 20 years ago. If it means giving back some extra in tax with these new arrangements then so be it. As pointed out, the old RBL rules would not have allowed many of us to accumulate a significant super balance in first instance.

There in lies the problem. They should not have been removed. Indexed of course, not removed.

If you hit the RBL limit, no more contributions and you took the SG payment from your employer as income/wages.

Original purpose of Superannuation was to fund or part fund ones retirement and build a pool of national savings.

It was never meant to be a wealth creation tool, nor should it have become one.

Cap it at $3M Indexed and have no complications.

If you are below preservation age and reach the Cap, you should be allowed to withdraw the money.

When you boil it all down, Harry's argument is that no one should have more wealth, including but not limited to wealth accumulated within super, than anyone else.

I'm not sure how this can ever be argued to be fair given that we all have different abilities and talents and we all expend different amounts of effort to exploit our different abilities and talents.

Notwithstanding that observation, the logical end point of Harry's argument can be achieved by removing wealth from those that have more wealth than anyone else, which is basically what Harry recommends the super system be reconfigured to achieve and is also what Div 296 seeks to achieve.

Unfortunately that inevitably leads to everyone becoming poorer and poorer as average wealth declines, which it must do as wealth is removed from those that have more than anyone else.

The logical end point of Harry's argument, therefore, is that eventually everyone ends up being equally poor, at which point no one has more wealth than anyone else.

The final point to make is that following Harry's recommendations will make reaching the end point of Harry's argument inevitable as it will greatly disincentivise anyone willing to expend any effort whatsoever to exploit their abilities and talents and will at the same time greatly incentivise everyone willing to expend no effort whatsoever to exploit their abilities and talents.

Nothing wrong with being in a position to save and invest more wealth than someone else.

The issue with Superannuation was that it was not its intended purpose to become a wealth creation tool.

To fund or part fund ones retirement and create a pool of national savings was Keatings view of the Superannuation he brought to the masses. Subsequent changes to Super put us in this spot.

If you're in a position t have greater funds, they should not be in Superannuation.

Given Div 296 taxes unrealised capital gains for those with a TSB greater than $3m, will these payments be used as a credit when it comes to calculating GST due following sale? Also, if improvements to the capital asset are made during the tax year, is there scope to adjust the base value of the unrealised gain calculation because the gain might simply reflect investment expenditure? Such treatment would be similar to CGT upon sale of an asset.

We often (almost never) talk about superannuation in terms of the rationale for its very existence. That being as part of a wider system to encourage individuals to achieve their optimal consumption pattern over their lifetime. Superannuation exists to provide for consumption in the years when individuals no longer have a regular income to draw upon. The case for mandatory superannuation is that individuals left to their own devices will not save enough to provide sufficient to meet their consumption needs in retirement.
We set up a scheme with ever-increasing mandatory contributions and what did we get? It is pointless answering this question in the context of the individual as the impact of superannuation is different for each of us. For the wealthier, superannuation has provided a tax haven in which to invest their savings. We have created a scheme with an excessive contribution rate and tax subsidies that result in savings way beyond what is required to meet consumption needs in retirement and hence why we do not see individuals running down their superannuation balances in retirement. As a result, we observe ever-increasing estates being passed on to the next generation. So how has mandatory superannuation worked from a policy perspective? It has failed miserably! Indeed, modelling shows that mandatory superannuation was never required for at least the top third by wealth and certainly not the huge incentives provided by the tax subsidies to encourage further "needless" contributions.
Are these needless tax subsidies of a magnitude that we should be concerned about them? The answer is yes given that at the moment they cost the taxpayer about $50B each year. One gets a better understanding of the cost of our mandatory scheme when one recognises that left unabated, these tax subsidies will grow to 2.5% of GDP by the early 2060s. At this same time, the aged pension is forecasted to represent 2% of GDP. which is down from 3% at the time mandatory superannuation was introduced. Putting this all together, it suggests the current net annual cost of the tax subsidies at a$40B growing to excess of $110B a year by 2060.
The tax subsidies provided in superannuation have always been bad policy as they represent a waste of taxpayers' money. The question is what to do about it? They represent a significant challenge to government as anything they try will immediately run into huge resistance mainly from the ever-expanding industry that has grown up to service superannuation. We see this in the current debate re the Div 296 tax with the government always being fearful of the end consequences for itself, especially given the experience of Bill Shorten's loss of the 2019 election. Unfortunately, these tax subsidies are just another instance where we are largely stuck with bad policy with no government being willing to propose other than the very smallest of changes.
Is the Div 296 tax a good starting point is targeting these tax subsidies? Probably not as it is far too convoluted although it does target those who both benefit most from the needless benefits and who least need the wealth for its intended purpose (consumption)? The fact that it has such features as a celling that is not indexed and that it captures unrealised capital gains provides the industry with the necessary targets to attack the legislation and so divert attention away from the key issue, that being the great waste of taxpayers' money attributable to the tax subsidies.

Super keeps money invested outside the home.

The tax rate on home notional / imputed rent and capital gains is 0%.

The tax rate on super disbursement accounts is 0%.

If the tax rate on super disbursement accounts was increased, or the amount holdable in super was reduced, money would flood out of super into homes, especially where resulting in full age pension.

Tax 'subsidies / concessions' are required to keep money invested, not in gilded palaces, but in businesses that provide goods, services and employment for the less capitalised.

Yes Dudley, as you say,

”If the tax rate on super disbursement accounts was increased, or the amount holdable in super was reduced, money would flood out of super into homes, especially where resulting in full age pension. Tax 'subsidies / concessions' are required to keep money invested, not in gilded palaces, but in businesses that provide goods, services and employment for the less capitalised”

Except then at a future point in time the government of the day can and will apply a Div 296 style rule (if passed) much more easily to the family home, how else will they be able to fund the vote buying expenditure promises at future elections? ( tongue in cheek).

"The tax subsidies provided in superannuation have always been bad policy as they represent a waste of taxpayers' money"

Plenty of other examples of this elsewhere too. Maybe government will have the temerity to address that "wastage" as well. Mind you, super is compulsory and subsidies are a necessary part of the compact, given that your money is locked away for 40 years or more, to force you to save for your retirement and lessen the tax payer burden of the aged pension. A good thing for many who wouldn't save otherwise. Is too much accumulated in super? Yes, but there are better ways of addressing this than introducing a bad, lazy policy of taxing unrealised gains. A wider agenda here perhaps with this precedent? Only time will tell.

Perhaps time to reflect too on the governments' misinformation/perception that any hard earned you get to keep is a revenue loss to government. Seriously!

By all means limit super accumulation amounts, pick a reasonable figure and index it. After that, no further contributions (it will hit mainly high income earners) allowed, so greater tax will be collected. Don't tax contributions or earnings in accumulation, but tax drawdown like most countries do and thereby ameliorate the age discriminatory perception & antagonism that is growing in the community about older people not paying their way.

Cherry picking super subsidies and ignoring or adding other partisan political subsidies needs to stop too.
Is subsidising child care, even for couples on a combined $500 K p.a good policy? Mind you Albo wants universal childcare where everyone only pays ~ $20 p.d. Is this fair and sensible policy? Do subsidies for millionaires and billionaires green energy boondoggles and hydrogen white elephants stack up? Electricity prices continue to go only in one direction, even with huge subsidy handouts! Is this good policy? Subsidising the failed Whyalla steel works and that perpetual waste of tax payer money, the ludicrous Adelaide ship & submarine building industry? Subsidising first home buyers when all levels of government are already largely the problem, contributing collectively about 40-50% of a new land and home package build? Perhaps others might like to add their observed subsidy wastage examples. NDIS anyone?

Whilst I agree that super balances have gout out of hand the current regime of limiting contributions has curbed that exponential growth. The proposed charges, in my view, would only apply for a relatively short period (over the course of a generation) as when super members die they ultimately have to exit to super system and form part of beneficiaries “normal” tax structure. Often this will involve some LS tax being paid. So will the high cost of implementing and managing this new regime be worth the effort when the number of balances over $3 m reduce significantly over the coming years?

Thank you to all readers who took the time to make their positions known in this comments section. Given the volume of individual responses, I won’t be able to address each one, so will seek to cover as many of the recurrent themes as possible in the below points.

1. Non-indexation of the Div 296 limit
I’m not sure if people have misread or misinterpreted my commentary, but I actual advocate *for* the indexation of the $3 million threshold, to keep it consistent with the previous RBL regime that ended on 30 June 2007. To suggest otherwise is incorrect.

2. Taxing ‘unrealised capital gains’
Yes, I understand that, for SMSFs in particular, this approach (noted as ‘Option 3’ in the accompanying Explanatory Memorandum to the Div 296 Bill) to estimating earnings is contentious. And it is earnings that this Bill seeks to target, not unrealised capital gains per se. To that end there are various adjustment processes and offsetting mechanism (backing out net contributions, adding back withdrawals) as well as relief in the form of an indefinite carry-forward of any negative earnings to offset future year positive earnings. I strongly suggest that those interested read the full EM (readily available online) including the impact analysis therein, rather than rely on hearsay or ‘expert’ commentary, myself or otherwise. You will get a much better understanding of the four options Treasury considered, and why this estimate of earnings method was selected (after broad industry consultation).

3. It’s not 15% of the earnings above $3 million, it’s a proportion of it
I get the sense that people are incorrectly applying the Div 296 formula. Once again, have a look at the ample examples provided in the EM. You might be surprised how small the impact is, even on large starting balances with significant earnings. There are at least 7 worked examples, one of which might apply to your circumstances.

4. The super industry hasn’t had a chance to have their say
Not true. Even before the official announcement, Treasury engaged with stakeholders as to the proposal. At the back end of March 2023, a consultation paper was released, and all major associations made detailed submissions, including the SMSF Association. That was followed by a series of technical working groups, including representatives across tax, law, accounting, actuarial consulting and the SMSF sector. That was followed by a series of roundtables held by Treasury with key industry associations. The exposure draft for Div 296 was then released in early October 2023, inviting submissions on the matter. 68 were received, including from the SMSF Association. To say that the industry has not had ample opportunity to influence the shape of the final Bill is to ignore the facts. Once again I encourage you to read the detailed EM. None of the above is ‘insider knowledge’. I read it all in the EM and you can too.

Hi Harry
I wonder how the “adjustment processes and offsetting mechanism” will address the situation alluded to in my comments below wherein an asset is disposed of at a loss but nevertheless incurs a tax liability under div 296 due to the way that “earnings” capture uplifts in value but fail to discern that the asset is still below its acquisition price.

A concrete example of this is BEN shares acquired near their peak (around $17 in 2006) and currently trading around $12. Assuming that the shares are disposed of at some point in the future above their current value but still below their purchase price, there is a provision under CGT to carry forward the capital loss to be offset against a future capital gain. However it is not clear if a similar mechanism exists under div 296 to offset a realized capital loss against future earnings.

Harry
Quite clearly a lot of stakeholders and tax professionals were not consulted. Hopefully the outcry against the tax by numerous rational people including economists, accountants and academics will have impact.
The Division 296 tax on unrealised capital gains is poorly designed and inconsistent with the broader taxation system. Professionals do not need this time-consuming and inefficient impost. Even if legislated the tax won't last. There are better taxing options.
Taxes need to be simple and efficient and designed with common sense. The paltry tax revenue estimated to be collected is not worth the complexity and workload. Productivity also applies to taxation.
Best wishes
Graeme Troy

"It’s not 15% of the earnings above $3 million, it’s a proportion of it":

A link to Explanatory Memorandum to the Div 296 Bill:
https://treasury.gov.au/sites/default/files/2023-09/c2023-443986-em.docx

Simplifying 'Example 1.2' by setting contributions to 0, Div 296 tax as % of div 296 'earnings':

Div 296 tax rate 15%, closing TSB 4,500,000, div 296 threshold 3,000,000, opening TSB 4,000,000;
= (15% * ROUNDDOWN(((4500000 - 3000000) / 4500000), 4) * (4500000 - 4000000)) / (4500000 - 4000000)
= 5.00%

Div 296 tax as % of div 296 'earnings' reaches 15% only at infinite TSB (asymptotic).

The description of Div 296 tax at the start of this article is not correct.

It’s in good company though. The number of articles in the press about Div 296 which make a hash (through ignorance or mischief) is truly stunning. Of course, Treasury got this off to a very good start by deliberately conflating two very different definitions of “earnings” (as applied to conventional income tax on an accumulation account on the one head, and as applied for Div 296 on the other)
.
The formulae provided in Treasury’s publications provide a different story, which is straightforward and unambiguous. However, this tax has an odd structure and it confuses many (most) people.

I suggest that the simplest way to describe the basics of Div 296 is that it is a tax on the annual growth in total superannuation balance (TSB) of all a taxpayer’s super accounts plus withdrawals minus net contributions. The rate of tax is 15% of the proportion of the end-of-year balance exceeding $3m. Thus, for a $5m end-of-year TSB, the tax rate is 15% x 2/5 = 6%.

The Super Industry hasn't had a chance to have their say. (and others in submissions)

Harry

Like you I have been working in SMSF since 1995 - say 30 as tax agent and now as an SMSF Auditor.

If a couple has more than $3M in Super (Assume you have $10M each) - below is my suggestion

Sell your house - say $4M (it is all tax free) and give it to your kids
Sell everything in super - you will pay some tax - assuming you both are in pension phase
Buy a house for $20M - Pick the best suburb - waterfront
Go on Age Pension

The pun is that Govt. wants money to pay for Age Pension - If you make own home limit to $3M instead of unlimited at the moment - many Age Pensioners will not be eligible to free money (Sorry Age Pension), Since own home is exempt - I doubt that Govt. will have data of value of their homes.

I have spoken to about 40 of those 80,000 - in our discussions - I have been told that they do not mind paying marginal tax rate on "earned income of the fund" above the pension TBC, instead of the current 15% - which is very easy to calculate and is fair and that will remove all the concessions on income - but they will not pay tax on change in market value

"Sell your house - say $4M (it is all tax free) and give it to your kids
Sell everything in super - you will pay some tax - assuming you both are in pension phase
Buy a house for $20M - Pick the best suburb - waterfront
Go on Age Pension":

1. After gifting $4M, have to wait for 5 years before eligible for Age Pension.
2. Probably need income greater than Age Pension to live and pay property tax even if ignore maintenance.
'For owner-occupied properties, the property tax consists of a fixed component ($451.85) and a variable component (0.323% of land value).'

A super fund is legally structured as a trust, not a company. As a member of the fund, I am not an owner nor a shareholder. It means that I do not “own” my wealth within the super fund. It is merely held “in trust” on my behalf as a beneficiary of the trust. Those assets do not become mine until released by the trustee.

That has many implications. I do not elect trustees. I cannot influence trustee decisions. The distribution of my super benefits on my death is determined by the trustees, not by my Will. It is the fact that I do not own these assets that puts them beyond reach of creditors in the case of bankruptcy. In a SMSF, all members are trustees and all trustees are members but that does not change the legal relationship between members and the assets in the trust.

Most importantly, a super fund is a separate entity for tax purposes with its own TFN. That is why, until now, ALL tax payable in superannuation on both contributions and fund earnings are paid by the fund, not the individual member. The proposed Division 296 tax changes, however, will mean that I, as a member, become responsible for the tax liability on the income and capital gains (both realised and unrealised) of another tax entity. How can I be responsible for the tax liability of another taxpayer?

In other words, not only is this a tax on profit that hasn’t been realised, it is not even my money - yet. Surely that is grounds for legal challenge?

Jon, You would have thought someone like Mark Dreyfus (given his legal background) or even the godfather of the super system (Paul Keating) would have pointed that out to Mr Chalmers before he went public. If Trump's tariffs are possibly the subject of a constitutional law challenge, why not Chalmers' proposed unrealised tax measure.

I agree with you Jon.

Consider a tax assessment ( assessed in the fund), with liability to pay the tax ( levied on the beneficiary ) followed ( normally ) by the drawing/ withdrawing of a sum from the fund to pay the tax of the beneficiary.

In the calculation of the movement in asset value, withdrawals are added back and contributions deducted.

So the tax paid from a withdrawal that was made to pay the previous years tax will be added back.

Thus, the tax paid will not be an allowable deduction as is normal in a taxable entity.

Bring on the legal challenge.

Linda, if fund in taxable position the following year too due to that year's unrealised gains and withdrawals added back, it means a proportion of tax calculated due on 2nd year is calculated on tax withdrawal prior year so it's tax on a tax paid if 'all withdrawals ' is taken literally.

I disagree with you Jon. Not with your outline of how trusts work, but with your conclusion that Div 296 results in other members being 'responsible' for my tax liability. They aren't. Most will probably pay it from other income, but even if those liable take up the ATO's offer of paying for it from their super, then that will work like any other redemption - be it a pension payment or a lump sum withdrawal. It will have no consequences beyond bau for the operation of super funds.
Div 296 is not a tax on super funds - it's an individual tax liability similar in that respect to Div 293 for high income earners.
Crikey, I'm starting to sound like I support Div 296. I don't, but this is not a valid argument against it. The one we should all focus on is the taxation of unrealised gains - it will be a significant success if that were to be overturned, though I'm struggling to see any helpful proposals for administration of the tax if they were excluded.

Warren, I never said that other members would be responsible for my tax liability. I said that I would be responsible for the tax liability of another taxpayer - the super fund.
I agree Div 296 is not a tax on super funds - it’s an individual tax liability - but it’s a tax based on the growth in assets that I do not own!
That’s the whole point - I do not own the assets held in a trust on my behalf. That is the essential feature of trusts that offers bankruptcy protection and made family trusts a great place to hide assets when it came to the age pension until the law was changed in 2002 to allow Centrelink to look inside a family trust: not to determine ownership but to determine control of the fund and the source of these assets.

My bad, Jon. Didnt appreciate the nuance. You may well have a point.

Would Div 293 provide a precedent though? Contributions tax of 15% is paid by the super fund, but Div 293 by the taxpayer - even though they no longer owned those funds.

It's your liability, Jon. Same as Div 293.

As with Div 293, you can ask the trustees of your fund to pay the tax on your behalf and that payment will be deducted from your balance. Or you pay it yourself from outside the fund.

Not the right straw to be grasping, I would say.

I agree that taxing large super balances is appropriate. Super is not meant to be a scheme for transferring wealth to your heirs, but rather a way to fund retirement. But the implementation as proposed introduces unnecessary complexity. Why add new rules and new calculations where the existing rules can be leveraged?

1. There is already a methodology for taxing earnings (at 15%) during accumulation phase. Do we need another one that is different? Is it not simpler to raise the tax rate for large Super balances, rather than inventing a new methodology?

2. There is already a threshold for determining when super balances are too large to be eligible for tax benefits: the Transfer Balance Cap ($2m from 1 July). Do we need another one that is different? Is it not simpler to use the Transfer Balance Cap as the threshold for increased tax?

3. There is already a mechanism for reducing the use of superannuation for wealth transfer: the minimum drawdown rules. Is it not simpler to impose a higher the minimum drawdown for balances over $2m (ie the Transfer Balance Cap), taking money out of a tax advantaged environment?

Already the super system is way too complex - almost too complex to navigate without financial advice. While the Labour policy goal is reasonable, to it is unreasonable to achieve it by heaping even more unnecessary complexity on the system.

I agree, it is the extra complexity that policy makers seem to fail to understand is not a good thing.

A simple way to achieve a similar outcome would be to simply increase the tax on earnings in super after age 65 from 15 to 30%. Preservation age is met at this age and $2m can be transferred to the fully tax free pension environment. For those lucky enough to have more than $2m in super after age 65 they have a simple choice of retaining funds in super at a 30% tax on income or liquidating and holding the funds elsewhere.

This would kill the unfairness argument about taxing unrealised gains, has indexation already inbuilt and provides far less complexity, using mechanisms already in place (it should be reasonably simple for large unit trust funds to implement as they already manage the differences in tax rates between accum and pension).

It has the added benefit of encouraging the transfer from accumulation to decumulation at age 65, ensuring the intent of super, to fund retirement, is better met.

"choice of retaining funds in super at a 30% tax on income or liquidating and holding the funds elsewhere":

Tax on income outside super:
https://imgur.com/a/Ezee9OV

Couple income exceeding 2 * 31,002 / y would likely go to home improvement, where marginal tax rate is 0%, eventually resulting in increased eligibility for age Pension.

A good call…but I doubt the policy makers a are listening.

This is a brilliant solution Gen Y.

It addresses the objections about indexation and unrealised capital gains. It is in line with the lower and more equitable threshold the Greens were seeking. It will be much cheaper and easier to implement. And it also goes a long way to addressing the increasing problem of people staying in accumulation mode in retirement rather than converting to ABP.

Bravo! Hopefully the Greens will read this and tell Labor it's what they want to get their support in the Senate.

The problem with your solution 1 is that super funds have no view of the existence of other super funds held by the same member. So it's 15% in accumulation and 0% in pension. Simples. Easy to administer. That 15%, incidentally, for most APRA super funds with unitised investments, is embedded in the unit price. To make a higher rate conditional upon a balance at a point in time (when?) which is effectively the member's total super balance, is not possible under the current system, so it has to be done via some other means.

I'm not disagreeing with your points, just highlighting that your easy solution to the problem isn't easy at all.

You are right that super funds don't have an overarching view of someone's total super, but the ATO DOES via the TFN system.....as you say "simples".

"super funds don't have an overarching view of someone's total super, but the ATO DOES via the TFN system":

ATO already offers quarterly fixed quarterly PAYG for super funds (~withholding tax) with super funds annually assessed for potentially more or less tax. System could readily cope with an additional tax rate bracket.

Assessment currently does not include unrealised profit. Nasty for super funds with small liquidity and large unrealised capital gains.

Actually there is an easier/fairer solution. Like Morrison did for pensions where people had to work out the excess amount they had in pension phase (which was done at a point in time, so once only) those affected would need to work out their excess amount (over the $3m), then place that in an "excess" accummulation account and tax the taxable income 30% (via actuary certificate). The only sticking point to be decided here is do you take the actual pension balance or the transfer balance cap amount as the value of the pension.

For those with accumulation accounts only, then any amount over $3m would simply be in the "excess" accumulation accounts and earnings taxed at 30% (again by actuarial certificate). The 15% tax accumulation accounts would then not be able to receive any further contributions as the person's cap had been used.

Amounts could then be indexed like pension limits are.

Advantages - no tax on unrealised gains, once off calculation, indexed amounts and simpler to monitor.

Rob W - that's not my point. The ATO doesn't have a view of a person's total super in real time and also doesn't have the funds. The original commenter seemed to imply you could simply reconfigure the existing system to charge a higher rate on members with balances exceeding a particular threshold "rather than inventing a new methodology". Given the highly variable state of the markets it's simply not possible for a super fund to tax "earnings" (and the original commenter hasn't mentioned contributions) at 15% for one member and 30% for another because the tax is embedded in the unit price of unitised investments that the vast majority of superannuation members hold - and in an extreme scenario, even if it was possible, that additional tax might take the member back under the threshold and the tax could therefore be argued to have been incorrectly applied.

I'm saying to do this you HAVE to invent a new methodology and tax in hindsight via the ATO's total super balance at a point in time (financial year being the obvious one, because that's the extent of the ATO's super data, generally) because the existing methodology, which encompasses not only the rate at which tax is applied, but the manner in which it's applied, can't do it, and never will be able to do it.

That's all.

Geoff, re this & your other comment this section, if the methodology for retail fund balances can't be done as you said, how can the Bill as was originially proposed be re-introduced to Parliament unless there is major change to the content of/how tax calculated etc so there is level playing field for all? If this is case then how did Canberra boffins tasked with putting the Bill together in first instance not manage to assert this originally? Or if DB pensions would be brought to the umbrella? Or how would farmers manage if land in Super as a unique class of taxpayer? It's hard to think that nobody would think of all aspects in its preparation and if they didn't, we should be questioning who thought this would work without testing how, and questioning validity of the figures presented to justify this tax raising by complicated means for an estimated drop in the ocean. Your point raises doubt re Canberra efficiency with all the bright brains they're supposed to have and I don't mean that with sarcasm. And lastly, if what you say is the case then how would one get Canberra to listen and admit errors since they don't for much else?

Not sure I think the article has much merit in the real world.

There is absolutely no need to add another layer of complexity. Put a cap on balances or tax earnings over a threshold.

And I wish supposedly knowledgeable govt officials and commentators would stop reference APRA regulated funds accrued unrealised capital gains. This is a complete nonsense argument given the unit price is used for daily valuation and only applicable IF YOU SELL.

In effect the Government is saying that $3 million for an individual (or up to $6 million for a couple) is a reasonable amount to accrue in superannuation, and anything beyond should not be as generously taxed.

Then Cap Superannuation at $3M. SG Payments to be take as wages/income if you reach $3M Balance

TBC of a Tax Free amount of $2M also indicates that $2M is a fair amount to have in Super.

$3M is not indexed, TBC is, what happens when TBC catches TSB? Which tax status applies.

TSB balance is allowed to grow and still remain Tax Free from set up.

Governments love playing with the superannuation scheme. One government will increase benefits, another will take them away.
Taxing unrealised gains is wrong. Once this is begun, it will spread across other assets.
As previous governments allowed fixed assets to be included in SMSFs, a problem was immediately created.
How does a farmer pay for unrealised gains on his farm value when he hasn’t earnt income from the gain but only on using the asset to farm the land.?
This should be scrapped and increased tax applied to earnings of his fund on movement of actual money into or out of the fund.
The whole system is now far too complicated with changes and adjustments constantly being implemented.

I agree with you.
All other commentators have missed the point why Div 296 is unjust
Say a persons acc bal is $6m & they die single , non tax dependants, then the tax paid is largely 6m x17%. some $1,020,000 even though this could include 50yrs of contributions with absolutely no adjustment for inflation as well as paying tax on real earnings & cap gains realized, annually & contributions tax.

Div 296 has no tax precedent , taxing unrealized cap gains & arbitrary balances over 3m and should be abandoned.

I have written to Dr Aly ,PM & Treasurer, as well as senate committee.....I don't think any of them understand it and I didnt get reasoned replies from any of them......sent from a ret CPA, GIA & former Financial Planning Principal

I have sympathy for younger generations. It is much harder for them to buy a home than it was for their parents and home ownership numbers bear this out. Your detailed defense of this policy fails to explain why people born in 1990 deserve a far worse retirement system than those born in 1960. Harry, please tell us why the absence of indexation is fair and reasonable.

I'm concerned for the future generations also. I can live with a higher tax on the proportion of earnings generated from the above $3m (my understanding is that the earnings generated from the first $3m would be taxed per original). I have a fundamental issue that it isn't indexed, and more so if the greens $2m is used, in addition it needs to be when funds are drawn down so it is real. Raised elsewhere, how will franked dividends in super be dealt with? Is the franking credit seen as an earning and taxed again and will there be another convoluted interpretation to resolve the calculation.... I read the draft bill - the examples are somewhat simplistic, but the calculation explanation seems more complex than it needs to be. It needs to be articulated clearer

"Raised elsewhere, how will franked dividends in super be dealt with? Is the franking credit seen as an earning and taxed again"

https://www.theaustralian.com.au/business/wealth/despite-assurances-the-new-tax-on-super-will-hit-franking-credit-refunds/news-story/3fdb416cd7f7d55a77c12cd0a68184b3#:~:text=Despite%20assurances%2C%20the%20new%20tax%20on%20super%20will%20hit%20franking%20credit%20refunds, in The Australian 28 May 2025. Paywall mind you!

Short answer YES they will be taxed again.

Excerpt(s): Industry analysts had earlier believed franked dividends would escape the reach of the highly controversial tax, but superannuation specialist auditor Naz Randerian of Reliance Auditing has quashed that. “I should have picked this up earlier; it’s only when you look really closely at how it all works … it actually results in taxing franking credit refunds,” Randerian says. This means you are paying double tax … it’s against all the rules, you should not pay tax on profit after tax; it’s basic logic.”......But Randeria says what she missed – along with many others – is that the franking credit refunds get included in the annual calculation of taxable earnings at funds and this falls within the new tax net.....Any super fund with investments in fully franked Australian blue-chip shares is exposed to the issue. Retirees with SMSFs who have accumulated share portfolios to take advantage of franked dividends are the most exposed segment.

“When a fund receives franking credit refunds they are included in the member’s after-tax earnings,” Randeria says.

“The Div 296 tax imposes a 15 per tax on a portion of these franking credits; this is where we see a tax on tax refunds.”

“I’ve been warning about this tax for a long time. I’ve written to the Treasurer, Jim Chalmers, directly; this is not tax reform, it’s economic vandalism.”

Governments love playing with the superannuation scheme. One government will increase benefits, another will take them away.
Taxing unrealised gains is wrong. Once this is begun, it will spread across other assets.
As previous governments allowed fixed assets to be included in SMSFs, a problem was immediately created.
How does a farmer pay unrealised gains on his farm value when he hasn’t earnt income from the gain but only on using the asset to farm the land.?
This should be scrapped and increased tax applied to earnings of his fund on movement of actual money into or out of the fund.
The whole system is now far too complicated with changes and adjustments constantly being implemented.

The problem as pension mode. That's all there needs to do.

The taxation of unrealised gains and the lack of indexation make this a ridiculous unfair tax.

And that is before the fact that "gains" are not adjusted for inflation and that if these ephemeral gains disappear there is no refund of taxes paid.

But perhaps we should take a step back. Almost no-one would have achieved these levels of superannuation balances if they had not made sacrifices and put their own money in in addition to any mandatory employer contributions. They could have chosen to spend their money but the government encouraged them to save into super, such that they could provide for themselves in old age, rather than collect a government pension. The government set the limits on how much could be contributed so it is a bit rich (pun?) to complain they now have saved "too much".

Perhaps an alternative:

- no tax on unrealised gains
- when a person reaches the age when government pensions become available (currently 67), minimum drawdowns start applying to the total super balance, not just that part in pension mode.
- if a person takes a government pension (part or full) then all super goes back into accumulation mode (so tax is paid on it all as you are no longer "self funded").
- if super tax concessions are considered too generous then increase taxes by say 5% to make tax on accumulation accounts 20% and 5% on pension accounts.

and stop blaming and targetting people who have done as requested and saved to be self-funded.

"no-one would have achieved these levels of superannuation balances if they had not made sacrifices and put their own money in in addition to any mandatory employer contributions..stop blaming and targeting people who have done as requested and saved to be self-funded."
You forgot to mention that many of the so called non-concessional or after tax contributions were made with funds taxed at the highest marginal rate meaning that the government has already collected a dollar in tax for every dollar that was saved or contributed. So if the complaint now is that they have saved "too much" the counter complaint is that they have also paid too much tax ($1 per $1 saved) in doing so.

Although it seems most folks who have commented here are against the tax on 'unrealised Capital Gains' within super (as am I), please help me understand why this differs from the taxes on our homes. The amount I pay each year on my taxes (rates) increases as the value of my home increases, yet I have not 'realised' the capital gain on my home as I still live in it and have not sold it. Is this not an increasing tax on an unrealised Capital Gain?

Editors note: the comment above is not from Harry Chemay. It's another Harry...

“please help me understand why this differs from the taxes on our homes”
More than happy to help..the annual rates that I paid on my home last year amounted to 0.12826249 cents in the dollar on CIV or roughly 0.12%. This is a far cry from the 15% that is proposed under div 296. So the argument does not hold water since hardly anyone needs to sell their house to pay their annual rates but many people may need to sell assets to pay a 15% annual impost if those assets are not producing enough income to pay the tax.

Your rates go towards providing services you use such as rubbish collection, road maintenance, libraries etc.
The super tax just goes to government revenue.

Your rates are also not 15% of the increase in value of the home

How can just one paragraph be dedicated to justifying the taxing of unrealised gains? The article pointed out Div296 applies mostly to SMSF, so why argue that unit prices already account for tax on unreaised gains?

A responsible and informing piece would have mentioned that the tax is calculated on one taxpayer and levied on another. Basing the tax on a superannuation fund and levying it on the individual is a dangerous precedent.

I saw no mention that those who havent reached preservation age also face lump sum tax (up to 22% on their lump sum withdrawals to enable the tax to be paid). I also note that politicians are either exempt or can defer the tax- whilst the rest of us under preservation age are copping a tax on a tax.

Notice theres no mention of the rate of tax? Almost no one is arguing the 30% - its the unjust, inconsistent and unprecedented process that is abhorant - and yet easily fixed, by simply levying the tax on the super fund and on realised gains.

Nice angle DanT. Throw in the full burden of the Age Pension to taxpayers versus the supposed tax concessions and it shows a different story. Piling on one segment given it's politically practical to do never needs well

Regardless of the right or wrong of an additional tax on superannuation, it sure seems like Labor could make it a lot easier on themselves by simply getting rid of the tax on unrealised gains and indexing the $3 million limit. I would be very surprised if there wasn't widespread support for that, again regardless of whether it is right or wrong or "fair".

Ok here's another expert that's so conveniently ignored the elephant in the room and the underlying unfairness of the implementation of this tax. Nobody is saying the tax is unfair, what they are saying is that (a) it's not indexed (b) unrealised gains is a step too in terms of bad policy and (c) capital losses are not deductible and (d) the gain is payable right away. All these features have been put in by design to rob people of their hard earned money and eventually it will hit everyone. This is what happens when you have a bankrupt government that spends willy nilly until it realised it has nothing left.

There is a lot of wastage and bureacracy in the commonwealth government, surely we don't need 30,000 new federal public servants within 2 years under Labor if red tape wasn't a problem. The salaries of these alone would more than make up for the super tax. But more sinister is that this tax opens a pandoras box for the Greens to use unrealised gains everywhere else, not just super. In which case, Australia would become even more of a banana republic than it already is. If any economist of financial advisor, regardless of their resume, thinks this is a step in the right direction and good policy, they need their heads checked. World's highest energy prices, world's highest house prices, reducing spending power, all these are symptoms of a badly run economy, or even worse, a planned decline.

Agree 100 % with Hannah
Despite what the “experts” are saying unless this is indexed it will catch all our Grandkids and labor know that full well.
Taxing unrealised capital gains is unjust and despite what my federal labor member told me it has never been done before
What a joke it is that it doesn’t apply to politicians!

If the government wants to limit the maximum amount of money that a person can have in a taxed privileged superannuation system, then a simple solution would be to set a simple limit of N dollars (e.g. $3 million initially) on the total balance that can be held in the system. This should be indexed yearly in a way (by CPI e.g) of course, This maximum balance would apply to all amounts in super, regardless whether in accumulation or pension phase. Every year every super account has to report its balance as of 30th of June. If the balance is higher than $N by a delta dollars, then they will be obliged to pull out the delta dollars within certain amount of time e.g. 6 months.
Of course, the pulled out delta sum by definition will then return to the regular tax environment.

This is an extremely simple system, easy to calculate and also conceptually simple to understand by anybody. It should also be relatively easy to sell politically IMHO.

There is one possible complication for limited cases e.g. of farmers who have their farms in the super and no other liquid assets. This may be enumerated and for these relatively few cases some special provisions or a level of grandfathering may be granted. However, due to initial enumeration of the cases, no new such cases would be allowed to be created to prevent creation of another loophole.

I think Harry has made a very strong case for the addition of more progressivity into the superannuation tax regime. Like several others, I've got no objection to that at all. Having higher marginal tax rates on higher income earners is a long accepted feature of our tax system. The additional argument in Harry's article that I appreciate is the quantification of how the lack of a higher tax rate for high super earners is resulting in the purpose of super being undermined - it's unacceptable from a policy point of view for the tax concessions to high earners being so far above the aged pension that super is meant to replace/supplement. It's not acceptable from a budget management point of view and it's not equitable.

A common argument against this - which has appeared in a few comments here - is that it's somehow regarded as not being fair on people who've just 'followed the rules'. To that I say, so what? Someone who gets a promotion at work and a pay rise that takes them into a higher tax bracket has just followed the rules, but has to pay more tax. And if the government changes the marginal tax rates so that you have to pay more tax, then 'just following the rules' doesn't excuse you from contributing to society by paying a bit more. This is a non-argument, in all reality.

The question for me is the same as it was when Shorten and Bowen proposed the removal of franking credits. Is the tax-raising measure good policy? No problem with governments trying to raise more tax if that's deemed to be fiscally necessary (which at the moment it is), but they should do it via a tax policy that stacks up as good policy. Franking credit removal didn't stack up. Div 296 is what we're now facing as an attempt to come up with a more defensible tax increase on higher earners than that proposal.

Where Harry hasn't made a strong argument is in defending the specific policy elements of Div 296, in particular the fact that it taxes unrealised gains. He's right to point out that there are some elements of this already in our system - another I'd add is that companies need to update asset valuations regularly and include gains in their profits. I'd also argue that land tax is similar, as it's imposed on an asset value and goes up if the asset value goes up, without any capital gain being realised.

However, he hasn't addressed the main problem as I see it, which is that this introduces a double taxation of those gains when they are realised. Under Div 296 they'll have been taxed as a component of the total return and then will be subject to the normal taxation of capital gains within their super fund if the asset is sold. (Meg Heffron pointed this out in her article on Div 296 some time ago.) The government might be in effect saying that they're happy to go with that as the cost of having a fairly simple calculation.

And one positive aspect of this as a policy is that it's administratively simple - for the ATO, for the tax payer and for super funds. A couple of people in their comments have said, 'why can't they just introduce a higher tax to be paid by super funds like the existing 15%?' Yep, that sounds simple. Except it isn't, for the reason that a lot of people have more than one superannuation account with different super funds. Apart from the privacy issues of super fund A knowing how much you have in super fund B (and vice versa), the risks of errors and challenges to the calculation of your Total Superannuation Balance by each of your funds is not insignificant. And how do you allocate the tax between the two (or more) super funds you hold? Far easier for the ATO to tax you as an individual because they know how much you have across all your super funds.

As for the indexation element, I point out that CPI indexation won't solve the perceived problem. Most super funds grow faster than the CPI, especially those that are invested heavily in growth assets. A fund invested 100% in Australian shares would over the last 10 years have doubled in value which is just over 20% more than the CPI. I'm not a fan of indexing things that aren't highly sensitive to the 'cost of living', such as the age pension. I accept that a future Treasurer, in seeking to win votes, would increase the threshold for Div 296 when the political pain was starting to get hurtful enough from the additional tax payers being drawn into paying the tax. A discrete adjustment made every few years has every chance of delivering at least as good an outcome as indexation to CPI.

One final comment about the $3mn and why the Greens are wrong to call for $2mn. Quite simply, the threshold needs to be far enough away from the current Transfer Balance Cap, which is about to go to $2mn. If the threshold for Div 296 was set at $2mn then it would rapidly introduce taxation of what are supposed to be tax free earnings. The debate has already been had, and accepted by all parties, that a reasonable level of super to go into tax free pension account is $2mn.

Warren, with regards to APRA regulated founds accounting for unrealised gains, I assume taxes on unrealised gains are not paid at the Fund level i.e. taxes on unrealised gains are not law and therefore not imposed by the ATO.

With regard, to land taxes, they are imposed irrespective of whether property values go up or down (as they sometimes do). Land re-valuations are mainly performed for evaluating relative property values, seeking to achieve fairness for those who pay land tax.

With regard to balance caps, it would be simpler to have only one cap - the TBC. Once a member goes into the pension phase, all funds in the "de-accumulation" account would be taxed at a higher rate (say 30%.). This would require the industry funds to have one more taxation "bucket" for members who have commenced a pension and have funds in excess of the TBC. In my view, having two balance caps is an administrative nonsense.

Thanks Nicolas.
Unrealised gains aren't taxed in super - on reflection I think Harry isn't right there. Unit prices capture unrealised gains, but trust income that is taxed is only what's realised. This is the same for unit trusts outside of super as well.

As for land taxes, I didn't intend to suggest that they're levied on gains. But when a block of land goes up in value so does land tax. I recall a State Treasurer many years ago defending rising land tax collections on the basis that "well, the landowner has a capital gain". So the impact is that unrealised gains result in more tax payable, but of course you're right that an unchanged land value still incurs the tax. (In that way Div 296 is superior - no change in value = no tax.).
Your last point is valid. It would incur costs for super funds to make sure their members were being taxed at the right rate for their age and pension account status, and there would be risks of getting it wrong when a member has some super with other funds, so Div 296 is administratively easier all round. There may be other problems with it - I haven't explored alternatives in depth, just trying to understand the proposal in front of us.

It’s true there is an element of double taxation of gains, when they are unrealised and later when they are realised.

However that blow is softened for two reasons.

First the discounting of realised capital gains taxation on held for 12 months results in a tax rate of 10%, not 15%, on the whole gain.

Second only that part of the unrealised capital gain referable to the proportion of the individual’s balance over $3 million is taxed.

For example if the individual started the year with a $3 million balance and ended the year with $4 million balance, with no other contributions or withdrawals, the tax would be;

$1,000,000 x 25% (being the proportion of the individual’s balance over $3 million) x 15% = $37,500

It’s not 15% of the whole unrealised gain that is taxed.

Warren
The fund only pays tax on the realised capital gains, but there is a deferred tax liability (as there is in any corporate structure, including SMSFs) for the tax to be paid when the gains are realised in the future.
This is reflected in the unit price (now) even though the tax will be paid in the future.
It is the source of a pension bonus when a member moves into the pension phase as the deferred tax liability falls by their share of unrealised gains.

I haven’t seen any suggestion anywhere that the purpose of indexing the threshold is to try and match the proposed growth of funds. The rationale of CPI indexing (as it for indexing any threshold or limit) is to maintain parity of spending power over time. This is to ensure that future generations will rightly have similar effective limits, rather than creating distortions across age groups. As for trying to explain away non-indexation with the notion that a future politician might increase the limit because it might good for them politically? Tell that to a 40 year old trying to figure out whether they should make additional contributions based on an assumption or a guess that this might happen at some unknown time in the future. Like the vast majority of people appalled by this ridiculous proposal I don’t have any problem with a $3M indexed threshold without unrealised capital gains tax. Those opposing this tax seem to me to be making far more sense than those in favour of it. Seeing commentators tying themselves up like pretzels trying to justify this nonsensical proposal just seems to confirm how bad it is.

Thanks for clarifying that point, Aaron. Of course, when the gains are realised and tax is paid on that, it's offset against the accrual so not taxed again - a key difference from the proposed Div 296 and how it will interact with other taxes in super.

It surprises me that, in relation to indexation, no one has mentioned that government policy attempts to achieve its objective with the minimum amendments of obligations and rights. Best practice policy (as opposed to politics) seeks to ensure future decisions are not fettered during implementation. That’s why most indexation (and other revenue setting measures) occurs by the government of the day as part of Appropriation Bills (annually budget legislation). Against this principle, good legislative policy on the TSB is winning the argument over “good” politics. (And the new balance of power in the senate suggests that political compromises aren’t critical for these new provisions to pass).

Nobody seriously argues that additional tax on large super/pension benefits is not justifiable and this is really not a issue unable to be addressed by normal taxation methodology.
So Harry, I really do not care how extensive your represented experience might be, the principles of equitable taxation methodology seem to have escaped you.
The taxing of 'Unrealised Gains' is an unnecessary, grossly inequitable way of 'tax gathering'.
This is an 'ego driven' pursuit by somebody who will not earn recognition for introducing intelligent taxation policies for the good of this country unlike the subject of his thesis .
So welcome to the Jim and Wayne Show and their belief that this mechanism will finally be the 'death knell' of SMSF's and Industry Funds shall reign supreme and Wayne and Jim will control your super.
One more thing, when talking about a concessional tax regime ----- why is there no fair refection on the number of times the same assets are taxed each year during the accumulation phase.

This new tax just strengthens our plan to cash in part of our super, sell our home and buy a more expensive home near the beach. That's an asset that will keep growing in value and we avoid these new taxes. When we're older again and slowing we may upgrade out home again and reduce other assets so we get a part age pension and all the benefits that flow.

What a sad plan.

I would expect the next Treasurer to tweak this by including CGT and Death Tax to excessive value of the family home. Perhaps even means testing for government benefits. This is creating a slippery slope.

"buy a more expensive home near the beach" ... "avoid these new taxes":

Requires care to avoid property tax and maintenance becoming a burdensome portion of Age Pension.

Early 'bequests' enough to doing anything but not enough to do nothing?

I might just pip you Harry, having been involved in tax and super since 1982.
During the RBL era I had many clients with seven figure HAS's [Highest Average Salary], maximising their entitlements before the boom was lowered with the fixed dollar RBL's to which you refer. Something similar to what is happening now!
There is no doubt that, for the wealthy, super has been the greatest, totally legitimate, tax shelter on offer. Of course you can't blame people for taking advantage of this but it simply isn't right - it offends one of key principles of a good tax: it isn't equitable.
So it is impossible to disagree with the broad thrust of what is proposed.
When it comes to the detail however I think we could do better - another key principle of a good tax is simplicity.
I agree with Mark above about the Transfer Balance Cap - why on Earth would you have TWO limits on benefits when you could have one? The two measures should be integrated.
The $2m TBC dollar limit seems more than generous to me given the stated objective of super and, logically, it should be indexed.
The TBC provisions should continue to operate as now so that when a TBC pension is struck that is the end of the matter as far as taxation is concerned - with no looming non-indexed cap on the horizon.
Balances in excess of the TBC at the time the pension commences and that portion of pure accumulation balances over the common indexed annual cap of $2m should be subject to the same higher tax rate.
But why pussyfoot around with a rate of 30%? That still represents a massive gift to wealthy people who don't need it and frankly, should not be rewarded in this way. Just tax the excess at the highest marginal rate.
If money pours out of these high balance accounts into family trusts as a result, as it will, so what? There is no particular benefit to retaining these funds in super as opposed to alternate vehicles - certainly not enough to justify the massive revenue cost involved.
I take the point about unit trusts and the necessary provision for tax on unrealised gains inherent in daily unit pricing but that is an accounting process. Yes of course you can calculate unrealised gains but our CGT operates on a realised basis and to deviate from this for one specific application seems a needless complication. In any case the revenue cost of not taxing unrealised gains could be more than offset by the lower cap and higher tax rate.
Whenever something like this is proposed the screams are predictably loudest from those with something to lose. These voices should not be heard. Every client I spoke to in the 90's about optimising their opportunities in super was caveated with the warning that this was a bonanza that was simply too good to last forever. I think everybody understood that. And everybody has done well out of it for a long time.

Well said Jeff.

"If money pours out of these high balance accounts into family trusts as a result, as it will, so what?":

A super interest with a Total Super Balance (TSB) less than the Transfer Balance Cap (TBC) might have transferred all funds to Disbursement Accounts with the resulting tax rate of 0%.

The TSB grows from $3,100,000 to $3,200,000, the Div 296 tax rate being:
= (15% * ROUNDDOWN(((3200000 - 3000000) / 3200000), 4) * (3200000 - 3100000)) / (3200000 - 3100000)
= 0.9375%
which is the tax rate payable on the TSB. No compelling reason to move the funds.

A different super interest might have had a TSB greater than the TBC and have funds in Accumulation Accounts with a super tax rate of 15%, which is a more compelling reason to move funds out of super.

Where is the tax rate less than 15%?

1. Home, 0% tax rate regardless of amount of notional / imputed rent or capital gains.
2. Distributions from company or trust to shareholders or beneficiaries with tax rate less than 15%.
2.1. Adults 67+, 0% tax to $31,002.
2.2. Adults 66-, 0% tax to $22,575.

A company can buffer changes in earnings; retain excess earnings relative to most tax efficient distribution, then distribute when there is an earnings deficit, with company tax imputed as franking credits.

Can a company be a beneficiary of a Family Trust, thus combining advantages of company and trust?

"There is no particular benefit to retaining these funds in super as opposed to alternate vehicles":

A gilded palace might provide shelter for a family's capital. Might provide demand for ('unneccessary?') building and maintenance.

Money invested outside a family home, provides capital for businesses to provide goods, services and employment to many outside a family's home.

I meant to say "There is no particular PUBLIC benefit to retaining these funds in super as opposed to alternate vehicles - certainly not enough to justify the massive revenue cost involved."

"as opposed to alternate vehicles":

What is the relative PUBLIC benefit of a private gilded palace relative to private money in a bank account?

Hi Jeff

My article in this edition explains as to why your suggestion, or one like it, will not be introduced. The reintroduction of RBLs is not consistent with open ended indexed DBs. Who owns large indexed DBs?

The grandfathering of excessive DBs granted benefits to an influential minority. Large Super balances in contributed accounts are owed by another influential minority.

There were 2 awful decisions made in 2005/06 and the costs - tax breaks and excessive unfunded DBs - are the result.

Time for DBs to be cashed out from the Future Fund and budget repair undertaken. The burden on working taxpayers (today and tomorrow) to pay excessive DBs has surely passed.

Now we know the Parliament can change the rules, on a whim, for contributed pensions, then they can surely change the rules, for the greater good, on those large unfunded pensions.

John, wondered long time why no Budget repair from FF when performed so well & yet they still delay from it any funding for unfunded Govt employee pensions catch-up. Last balance 30/6/24, about $230 billion. Sale of Govt portion left of Telstra funded FF and yet all these years later the nation (taxpayers) is not receiving any benefit of it for some budget repair from its' establishment/sale of Telstra. With suggested new Super tax for taxpayers affected, it seems this Govt is acting in a similar way to possible affected taxpayers---"you're not touching what I have saved legally under the rules", it is hypocritical for there to be extensions allowed for none of the FF to be brought into General Revenue to pay some of employee pensions and help reduce the deficit. No vested interest in subject but for my & others' next generation future and some fairness after the $60 odd billion re Telstra was earmarked for unfunded Govt pensions and has never been drawn down on.

Excellent article Harry.
There is a lot of frenzied criticism in the media etc about these proposed changes when they have an essentially no impact in any medium term period for the vast majority of people.
It has sadly become a feature of debate in Australia to advocate in the extreme for brazen self interest rather than what is good for the country. The intergenerational inequities that we have are very large and this but a small move to start to redress that.

Well done, Harry. Correct!

I can remember those heady days of 2006-07 when Messrs Howard and Costello removed RBLs and disrupted the super industry by allowing cashed-up members to pump copious amounts into their own self-managed super accounts. As with all disruption, "big super" would have been aggrieved by the policy shift as they stood out as potentially the biggest losers. Ever since, those initial concessions have been gradually whittled away and now it seems like the balance of power is shifting back in favour of "big super" as it was always destined to do. We can all argue about the merits/demerits of taxing unrealised capital gains of members with large super balances. For me, that is simply another example of a tactical response designed to reign in the excesses incentivised by overly generous concessions; concessions offered to everyone but in reality enjoyed by the select few back in the 2006-07 period. Once this dilution process commenced, it was only a matter of time until we reached a tipping point. Whether we are there yet is up for debate but the trend is undeniable. It is worth noting that the impetus for the Simplified Superannuation legislation was due to the largesse bestowed on the Government generated by a mining boom. Shame that it wasn't used for more productive purposes.

The best tax is a simple tax. The Div 296 tax is subjective, complex, can be manipulated, not payable every year but necessary to complete annual time consuming and unproductive reviews and audits. Trying to tax unrealised capital gains is stupidity.
All the complication to raise a paltry $2.6 billion in taxation revenue! Probably less than the increase in professional fees to administer the tax.
Superannuation is as much about tax avoidance as saving for retirement. The current system like the NDIS is unsustainable.
Drop Div 293 and 296 taxes. Tax super in accumulation mode at 30 percent and 15 percent in pension mode. This will significantly reduce the tax avoidance benefit and help balance the broader taxation system.
Keep the superannuation pension tax-free to provide incentive for people of retirement age to keep working and be productive.
Graeme

I agree completely with this argument It is simple and easy to implement
Roz

"Tax super in accumulation mode at 30 percent and 15 percent in pension mode":

Tax Accumulation Account earnings any rate fancied because the money can not lawfully be withdrawn until a 'Condition of Release' has occurred.

The reason for taxing Disbursement Account earnings 0% is because that is a competitive tax rate with the tax rate on home capital gains: 0%. Any larger tax would see a rush of money out of Disbursement Accounts into homes.

Why do robbers rob banks? Super has always been an irresistible honey pot, and will remain so. By all means levy greater tax on funds over a certain amount but this is not the way to do it. Personally, I think the precedent is dangerous. Will the same advocates agree it's ok when government casts the net wider applying the taxing of unrealised gains to assets outside super? Do you trust them not to? Tax super more, but fight the principle of taxing unrealised gains!

It is disingenuous to reference the people with $100mil as a rational for taxing people with a $3+mil balance as they are not the same demographic.
Disagree with no indexation and taxing unrealized gains.
Extraordinary for politicians to exclude themselves and others on the government payroll from this tax. Calculating the equivalent value of a defined benefit scheme is not rocket science. Not sure how one can reference "it is the responsibility of the cruise company, and the captain in charge, to balance the interests of all aboard" without pointing out the captain and cruise company dish out a product they will not consume themselves.

"It is disingenuous to reference the people with $100mil as a rational for taxing people with a $3+mil balance"

That would be because they want to achieve the outrage that people with $100mil in tax free super may evoke but also want the revenue that taxing people with a $3+mil balance will produce. Totally agree that they are not the same demographic-$3m will not even buy a decent house in a decent suburb anymore (eg.there are many streets in our inner suburb where the entry price is $3m+) so to regard such "wealth" as extraordinary disregards the reality of inflation and life in 2025 and beyond.

Abolish super and abolish tax on inflationary component of returns / gains.

Abolish Age Pension Means Tests.

Make Saving Great Again.

The unrealised gains are the sticking point for me, as is the small number of relatively huge super fund accumulations. As you have clearly outlined, the purpose of the scheme was to take the pressure off the pension system, not to provide a tax-reduced way to build wealth. Some have suggested capping the total super balance to $3m, and anything in excess is treated as normal investment holdings (i.e. CGT when disposed, contributions all from after-tax income). We already have a cap of $2m on transfer to pension mode, so a cap on the eligibility for this whole scheme also makes sense.

Thank you Harry for this objective, unemotional and accurate review.
Your specific references to the 2006/7 changes are important in this discussion. It was the lazy legislation of a Government wallowing in China sourced fiscal gains that led to Superannuation changing from its intended purpose to a 'tax effective shelter for intergenerational wealth transfer'.
I can't remember any criticism at the time that changing the rules after you had implemented your plans for your future was unfair and un-Australian. I guess self interest was running very hard in that period!

Making a member pay tax on a paper gain that may never be realized smacks of tall poppy syndrome and would never fly if it was applied to assets over $3m outside the superannuation system. The govt may have the numbers to crash this thru but div 296 tax remains inequitable for many reasons.
1. the asset may have been acquired at a higher price, eg. Bendigo bank shares were $17 in 2006 when our smsf was set up and notwithstanding that they have never recovered our smsf would be required to pay div 296 tax on any (full or partial) recovery of BEN shares purchased at higher prices.
2. Capital gains tax will need to be paid if the shares are sold at a higher price notwithstanding that div 296 tax has already been paid on any increase in value of the shares which amounts to double taxation of the same increase in value.
3. Our smsf holds significant cash which at times is earning less than inflation meaning that the interest earned is insufficient to offset the loss in purchasing power so that we would be paying div 296 tax on inflation rather than any real gain.
To restore equity the system should:
1. Include a clawback provision in event that the taxed gain is not realized when the asset is actually sold.
2. provide a credit for the div 296 tax paid against any future capital gains tax liability.
3. allow for indexation of the threshold at which tax is levied at 30% in a similar way that the Transfer Balance Cap is indexed ($2M from 1 July, 2025).
4. provide a discount for inflation when calculating taxable income from cash held inside a super fund.

This is an excellent analysis. My wife and I also have an SMSF with in excess of $3m, which includes some underperforming shares. As of today, the Unrealised Capital Loss is $21,675.47 for SGR and $ 3,725 for SPK. Under this latest tax grab proposal, the SMSF will have to pay tax on any unrealised gain in connection with these two shares, even when the capital gain is not sufficient to offset the initial capital outlay. I am struggling to see how this is good tax policy under any measure.

"the SMSF will have to pay tax ..even when the capital gain is not sufficient to offset the initial capital outlay.
I am struggling to see how this is good tax policy under any measure."
Yes I am also struggling to see how our dear leaders can justify such a measure since it amounts to tax grab on negative earnings which under-performing shares remain until their value rises above their purchase price.

Lucky for you Mr. McCann, this new tax will not be applicable until each (or at least one) of you have a balance over $3M. And even then, it is only proportionally applied.

The author confuses the "need" to tax large superannuation balances with the debilitating effect of taxing unrealised gains. The unrealised gains, which may be substantial, provide no cash flow and the imposition of the tax may lead to the forced disposal of assets. This in turn can overturn years of careful planning. This is simply not a good tax.

I also totally disagree with the implementation of this tax particularly on the unrealised gains and not indexing the $3M via the proposed Div 296 legislation.
I can support increasing the tax rate to 30% once the balance is over $3.0M but it must be indexed in line with inflation.
Also, the existing Div 293 legislation should be modified to include indexation.
The legislation re Div 296 if passed should capture all individuals who are or will be on Defined Benefit Pensions (Judges and long standing Politicians (eg the PM) and Public Servants) where their balance is the actuarily calculated as being in excess of $3M. People need to remember the words in George Orwell's book Animal Farm 'all pigs are equal, its just some pigs are more equal than others!!'
Basically, the taxing of unrealised gains should be eliminated!

Well put.
If the ‘difficulty’ or complexity of the application of these measures to a DBP cohort arises as a reason for it not to be applied then the same carve out ought to apply to all!

Well, I have been involved in super since 1971 (yes!) and there is a connection with RBLs which were even in place at that time through administrative arrangements. I have no problem in concept with this EXCEPT for the method of taxation on unrealised gains and the thought process that it only applies to a "sliver " of the taxpaying public! Apart from the broken promise by Albanese that there would be "no change" to super in the lead-up to the 2022 election. Apart from the mish mash of taxation methods which is currently in play. It should also be stated loud and clear that not one dollar of those balances has been placed other than within the (quite strict) rules applying to super funds. Notre also that these investments have been long term and (in many cases) have taken a lifetime to accumulate only to have it stolen by a free spending, ill-disciplined bunch of yobbos who are incompetent at their jobs!!!

Let's face it, when you have done the right thing and have something people just want to take it off you. What better than the fairness argument to impose the feeling of guilt so your's life's work can be taken from weak hands.

There is absolutely nothing reasonable about this change of rules to a long term savings plan with limited withdrawal rights (when does it ever stop). Maybe we should peddle the same old tired lines about the opt 1bps of member's who hold very high super balances. The rules which say these 40 odd people get there no longer exist. Shall we move on.

The problem we have with super is that it is too easily measured which makes it easier for those looking to peddle "fairness" arguments laced with jealously and envy. Imagine if personal balance sheets were published? " This blokes got way more than me - I don't like it and I want the government to do something about it".

Australia would be left with the entitled leaners spruiking fairness claims so they can make a claim on the hard work of others. The lifters would have moved on to where they are more welcome.

Taxation in advance of the earn is only something a socialist government can design. I'm glad we have rich people as I like food and opportunity more than starvation, envy, and oppression.

Let's not forget those wanting to tax your personal super have lived off the taxpayer all their lives and will continue to do so until they die.Has Albanese or Chalmers ever employed anybody or run a business. They are jealous of people who are successful and self sufficient.Are we to assume they will agree to be taxed on unrealised gains of their future tax funded superannuation. Why do they not pay a personal fringe benefit tax on Qantas's chairman's lounge and Virgin's beyond blue lounge. Australian 's put money into superannuation under certain criteria and now Labor want to bring in retrospective tax which is nothing more than theft.

RC and Raymond, agree. Irritates beyond measure career politicians of any persuasion who hold purse strings of the country and never worked in, managed or owned a business except student employment to get through further education yet they think they can handle a business budget. Not many have proved they can. So few have useful degrees or experience in even the subject matter of each Ministry. They think a degree in PP & E or Economics befits to manage government and that the rest of us are mere paupers of wisdom, as shown today when PM said 'we've budgeted 10 Billion for Defence' with a blank look on face as if thinking, that's enough and why are you questioning me?

Misses the point. When you are retired or planning for retirement it is not unreasonable that you can do so with predictablity as to the rules that will prevail into the future. We have had the Costello changes in 2007 to the upside, the Morrison/O'dwyer changes of 2017 reset and now Chalmers in 2025. Taxing unrealised gains is ridiculous - it is a straight out "wealth tax" because Apra regulated funds can't or don't want to do the sums.

No secret the target is SMSF's as that is where the money is. Why? For the very simple reason that they are dramatically cheaper to run and significantly more flexible. Then there is the critical question - "will the new tax raise the revenue predicted by Treasury?". Simple answer not a chance in hell - that money will move as high probability 85% of those impacted are beyond preservation age. Where will it move? Principal place of residence, Trusts, Investment companies, Kids/Grandkids accounts, offshore etc

Bottom line - we destroy trust in Super, we scare all investors that taxing unrealised gains will become the norm, we likely inflate the top end of the property market and we don't raise anywhere near the Revenue predicted. Top idea

Most don't disagree with the tax, but rather the taxing of unrealised gains and no indexation.

If SMSFs are the target, then why not make the tax revenue simpler and remove the deduction for ECPI where members have a TSB over $3million

All the problems of the "overly generous" superannuation system (to high net worth people) could be overcome with a fundamental change to the way we tax superannuation.

If instead of taxing super "on the way in" and on earnings, if we were to tax super only on the way out, all the over generous benefits would cease.

Consider, no tax going in, and no tax on the earnings. And taxing at ordinary marginal tax rates on the way out. Effectively, we have an "income equalisation" scheme, very similar to the farmers scheme.

You would have to make it compulsory to start taking money out at a certain rate once a person reaches a certain age, with the aim of having little left in super by the time the person dies.

People with big super balances, would need to take big payments each year (and get taxed on those payments). So limiting the amount of money that can be put into pension mode becomes irrelevant, and a higher tax on higher super accumulated amounts would also not be necessary, as the government will get the tax eventually thru the income tax system.

The biggest downside from the government's point of view would be the loss of taxation on "money going in", but they would make that up when the money comes out. Unfortunately, this means the current government losing tax revenue, and giving that revenue to a future government, so it is unlikely to get thru.

There would have to be some consideration of how to handle contributions made to super from "after tax money" (eg sale of assets or inheritance). perhaps the simpliest method for this would be a separate account, where the payment of these monies back to the person would simply be a tax free amount.

But we could modify this slightly by having a "withholding tax" (like company tax) when the money does get some taxation paid going in, but 100% of that taxation is given back to the superannuant when the money is eventually paid out (a pre paid tax benefit).

What are other's thougthts?

John, The point you make is a valid one. However, the current tax system was borne in an era when super was not the industry it is today. Given the system was in its infancy, Governments needed to find a way to bring forward the tax collection point. That argument is largely redundant now given the super system has matured and the boomers are now in drawdown phase. However, to alter the tax collection point now would be difficult to implement and impossible without grandfathering. That alone introduces further complexity.

No it would be easy to implement. We already know what the after tax contribution amount is. My proposal says it comes out tax free.

The amount that was subject to either contributions tax or earnings tax is the rest. It gets paid out in retirement. You get taxed on it as ordinary income but, like with franking credits we also know that 15% tax has already been paid. So that 15% reduces the tax that would otherwise be owed.

Very simple actually. Big super balances get taxed when paid out as pensions because there is a big pension being paid. Smallish balances.mean smaller pensions and with marginal tax rate up to $40k being less than 15% means no tax is payable. You could even refund excess credits like with franking credits.

Something also needs to be done about having the ability to contribute to super after tax until you are 75. Super needs to.start.coming out (at the latest) at aged pension age

JohnS

Yes I understand what you are saying and I don't disagree. However, once you start imposing a marginal rate of tax (as opposed to a flat concessional rate) on the pension payments, it starts to chip away at the social contract that underpins the super system.

What you describe is essentially the US retirement system with its IRA and 401K structures. Contributinos are limited in size but fully deductible, no tax on earnings in the fund and marginal tax paid on the way out. I think it's a simpler and more elegant system.

It still provides plenty of incentives to save. One of Warren Buffet's investmesnt managers, Ted Wechsler, has reportedly managed to turn USD 70K of contributions into an IRA now worth USD 264 Million in 30 years. Astonishing.

Could it be impletmented here? It could be contemplated alongside a much more fundamental set of tax reforms which Australia needs, including higher GST, lower income tax rates, more land tax, no property stamp duty, etc... Abisent a comprehensive set of reforms and political will which seems totally absent, I think the chances of such reform are zero, however. So we are left tinkering in the weeds in very sub-optimal ways...

It will look like a death tax if a couple each have anything over $1.5m in super and then one of them dies. I wonder how the number of 80,000 individuals impacted would change with this cut off?

The author refers to "helping wealthy clients channel up to $2 million of after-tax contributions combined, often from other wealth vehicles" into SMSF when the 2007 changes were implemented.
When Div 296 is implemented, does the author not expect money to flow out of SMSFs and into expenditure on primary places of residences as this is now the most tax effective investment. What will be the effect of this transfer from productive equity investments into more demand for capital city housing?

Totally disagree with the implementation of this tax particularly on the unrealised gains and not indexing the $3M.
My personal opinion is that once somebody triggers the pension mode from any of their accounts then the balance they leave in an accumulation is taxed at 30% which would encourage supporting retirement.
We already have an indexed Transfer Balance Cap ($2M from 1 July, 2025) which is supposed to reflect an adequate tax free pension balance so why not keep it all consistent? If your pension balance performs well from there then so be it, it should be celebrated not punished! You are still mandated to take minimal withdrawals from that pension account.

"My personal opinion is that once somebody triggers the pension mode from any of their accounts then the balance they leave in an accumulation is taxed at 30% which would encourage supporting retirement.":

Tax on income outside super is:
0% to $31,002,
28.5% to $37,499, and,
> 30% thereafter:
https://imgur.com/a/Ezee9OV

Likely that a large portion of super taxed at 30% would stampede into home improvement, resulting in increased eligibility for age Pension.

Anyone with $2m in a tax free pension isnt getting any Age Pension

"Anyone with $2m in a tax free pension isnt getting any Age Pension":

Not immediately, burn rate determining when.
= NPER(5%, 250000, -2000000, 0)
= 10.47 y.