In the labyrinth of government budgets and economic policies, there often lurk details that may not make the headlines but can have a profound impact on our financial futures.
For many Australians over 60, superannuation is not just a retirement savings; it’s the culmination of a lifetime of hard work, a financial buffer for the golden years.
So, when the government announced its intention to push ahead with a tax on unrealised capital gains for superannuation balances over $3 million, it was bound to raise more than a few eyebrows.
Hidden within the folds of the latest budget has sparked a heated debate across the nation. It’s a policy that could see a new tax imposed on the superannuation savings of Australians, and it’s not just any tax—it’s one on unrealised capital gains.
Some critics have described the policy as an ‘economy killer’. It was first unveiled in the 2023-24 budget. The government plans to levy an additional 15 per cent tax on the unrealised gains of these large superannuation balances.
This means that even if you haven’t sold any assets or cashed in on your investments, you could still be taxed based on their increased value.
According to the budget forward estimates, Labor expects to collect an extra $9.7 billion from superannuation funds over five years, starting from 2024-25.
This figure is based on higher-than-expected current year collections, robust employment leading to higher contributions, and increased tax from earnings on investments.
But what does this mean for the average Australian with a super fund? Let’s break it down. The government’s proposal would redefine ‘earnings’ to include the change in total superannuation balance over the year, after accounting for withdrawals and contributions.
For example, if someone’s super balance grows from $4 million to $4.5 million in a year, they would be deemed to have earned $500,000. If they’re $1.5 million over the $3 million threshold, they would face an additional 15 per cent tax on one-third of these earnings.
Critics, like Wilson Asset Management founder Geoff Wilson, argue that this is akin to taxing the value of your house each year without any intention of selling it.
‘People need to understand the ludicrousness of taxing unrealised gains,’ Mr Wilson said.
The concern is that once this tax is applied to superannuation, it could be extended to other areas, setting a concerning precedent that many find unsettling.
The Financial Services Council has warned that if the $3 million cap isn’t indexed to inflation, over half a million taxpayers could exceed the threshold over their lifetime, including many younger Australians. This has led to concerns that the policy is a ‘sneaky tax on young people, tomorrow’ disguised as a ‘tax on rich people, today’.
The debate over taxing unrealised capital gains isn’t new. It was a contentious issue in the United States during the last election, with former President Joe Biden proposing a similar tax for the ultra-wealthy.
The idea faced significant backlash, with fears of driving away entrepreneurs and stifling innovation.
‘Australians need to stand up for what’s fair and taxing unrealised gains is taxing a profit you may never receive. It’s unfair. It’s going to affect a lot of farmers, small businesses, entrepreneurs.’ Mr Wilson added.
In Australia, the potential impact on the $4.2 trillion superannuation sector is not to be underestimated. Critics argue that it could discourage risk-taking and investment, which are vital for the growth of corporate Australia and the broader economy.
Despite the controversy, some large industry and union funds have backed the idea, pointing out that large APRA-regulated superannuation funds already incorporate tax on an accrual basis, which includes unrealised capital gains tax liabilities.
As the debate rages on, it’s clear that the policy has yet to win universal support. The Coalition and Senators Jacqui Lambie and David Pocock have refused to back the legislation, and Shadow Treasurer Angus Taylor has stated that the Coalition would not support taxing unrealised capital gains.
For our readers, particularly those who have worked diligently to build their superannuation, this proposed tax could have significant implications. It’s essential to stay informed and understand how these changes might affect your financial planning.
If you’re nearing retirement or already enjoying it, the prospect of a new tax on your superannuation earnings—even those unrealised—could mean reevaluating your investment strategies and retirement plans.
We invite you to share your thoughts and concerns about this proposed tax on unrealised capital gains. How do you think it will affect your superannuation savings? Do you believe it’s a fair approach to taxation, or do you see it as a potential threat to your financial security?
Also read: Where did the $65,000 go? The mystery behind the superannuation saga
This measure, and others like it, targeting the very wealthy are needed.
However, it must be indexed.