Why retirees should be bracing for a new tax on unrealised gains

Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [email protected]

The election quickly descended into a contest of promises, coupled with an avalanche of misinformation. Sadly, the Coalition was hopeless at communication.

Progressing towards nuclear energy should be a no-brainer. Yet the only people who made the case logically and forcefully were Dick Smith and Nick Cater. They reminded us that at the COP28 UN Climate Change Conference in December 2023, 22 countries—including the United States, France, Japan, and the United Kingdom—signed a declaration to triple global nuclear capacity by 2050.

Meanwhile, real issues were swept aside – like soaring electricity prices, a deepening rental crisis, and the shameful fact that Australia now ranks dead last among OECD nations for growth in living standards. It won’t take long for the chickens to come home to roost.

The Prime Minister may have flourished a giant Medicare card, but will it actually get you in to see a GP? Whether you pay or it’s bulk-billed makes little difference when there’s a chronic shortage of doctors.

Then came his clueless jab at restaurant owners over holiday surcharges—oblivious to the fact that high penalty rates mean it’s either add a surcharge or shut the doors.

There’s one small mercy: the attack on landlords seems to be losing steam. Perhaps the logic has finally sunk in—fewer rental properties mean higher rents. It’s not complicated.

But the biggest ticking time bomb is Labor’s plan to tax unrealised capital gains in super. Announced in 2023—and now likely to pass, with Labor and the Greens close to a Senate majority—the measure imposes a new 15% tax, not just on profits you’ve actually made, but on ‘gains’ you haven’t even realised. If your total super balance exceeds $3 million, you’ll be taxed on paper gains, even if nothing has been sold.

It could get worse. 

The Greens are likely to hold the balance of power in the Senate. Their stated goal is to lower the threshold from $3 million to $2 million if they form a co-government with Labor. If that approach is adopted, according to ASIC’s Moneysmart and ATO data reported by The Australian Financial Review, more than 1.8 million Australians would immediately be captured by the policy—plus an additional 780,000 who are nearing the line.

Take this example: you bought Tesla shares in 2020 at around $85. By 30 June 2021, they’d surged to $400. But in July, they fell 50%. You’re taxed on the increase to 30 June, despite the later drop, and even though it’s money you never received. Worse still, this will often be a widow’s tax: a couple with $2 million each in super is unaffected–until one dies. The survivor inherits the full $4 million, pushing them over the threshold and triggering tax on gains they haven’t accessed.

Remember, the $3 million cap applies per individual across all super funds. Two people with $2.5 million each? No tax. But if one has $3.5 million and the other $1.5 million, the higher balance is hit. And it’s not just a tax on liquidity; it’s a tax on structure. Many people hold illiquid assets in their fund, such as property or farms, which can’t be sold quickly or easily. What makes this legislation unusual is that it anticipates the problem: if a fund lacks liquidity to pay the tax, the individual members will be liable to pay it personally.

A major problem is that many people are locked in. Remember, you can’t access your super until age 65 — unless you meet a condition of release, such as retiring after 60, which allows you to draw it tax-free. But until then, your hands are tied. You can’t rebalance. You can’t exit. You’re stuck with whatever paper gains the ATO decides to tax, even if markets crash the next day. It’s like being a rabbit caught in the spotlight: you see what’s coming, but there’s nothing you can do.

The irony is this: very few people object to a higher tax on actual earnings in super once your balance exceeds $3 million. What’s causing the outrage is the tax on unrealised gains. A sensible government would scrap the paper gains component entirely, confident that, as assets are sold over time, the tax will be collected anyway. You don’t need to tax the shadow when the substance is guaranteed to follow.

The critical date is 30 June 2026: the value of your super on that day is what matters. If you’re under the threshold, you’re in the clear. But if you’re close, you should already be thinking about strategy. It may be worth rebalancing or shifting some assets out of super. Retirees with low income can often hold investments in their own name and pay little or no tax, thanks to franking credits and offsets.

None of this is straightforward, but the planning window is open. And with the numbers in the Senate lining up, the legislation looks certain to pass—no matter how unfair or poorly thought through it may be. 

Now is the time to act.

About the author: Noel Whittaker, AM, is the author of Wills, death & taxes made simple and numerous other books on personal finance. An international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. Connect via Twitter or email ([email protected]). You can shop his personal finance books here.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions. The views expressed in this publication are those of the author.