The case for the $3 million super tax

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.

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.

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.

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.

"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?

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%.

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.

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.

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.

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.

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.

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.

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.

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, 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.

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.

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.