1. Key Features of the Policy: From Realised Gains to Paper Value Taxation
Under the federal budget proposal, the portion of superannuation account balances exceeding AUD 3 million will be subject to an additional 15% tax, effectively increasing the rate from 15% to 30% on that portion.
This tax will apply to unrealised capital gains — meaning increases in market value, even if assets are not sold. Furthermore, July 1, 2025, is set as the cost base reset date, and future tax assessments will be based on the change in value as of each June 30.
2. Taxation Logic Under Fire: Volatility and Uncertainty in the Tax Base
(1) A Tax Base Prone to Market Volatility
In the context of global economic and geopolitical uncertainty, the tax poses the following risks:
• If markets decline by the end of June 2025, the July 1 cost base will be artificially low;
• Any market recovery afterward will be treated as unrealised gains;
• Taxpayers may then face substantial tax liabilities on mere “paper rebounds”.
This structure effectively creates a situation of being “taxed high after buying low”, contradicting the traditional principle of taxing actual, realised profits.
(2) Long-Term Superannuation Stability Undermined
Self-managed superannuation funds (SMSFs) — key retirement planning vehicles — often invest in high-volatility assets such as equities and real estate. The uncertainty brought by this policy may result in:
• A shift away from growth assets toward lower-return, lower-risk holdings;
• Reduced capital flow into innovative startups and emerging industries, weakening Australia’s capital markets.
3. Broader Implications Than Expected
While the government estimates that approximately 80,000 individuals will be directly affected, the actual scope is likely much wider, including:
• High-net-worth individuals and property holders;
• Retirees relying on deferred-tax super strategies;
• SMSF trustees holding illiquid assets (e.g. farmland, commercial properties), who may be forced to liquidate assets to pay tax liabilities.
Crucially, the tax must be paid personally, not by the super fund, increasing administrative complexity and financial exposure.
4. Criticism and Reform Proposals
Key concerns raised by experts and industry groups include:
• Unrealistic tax timing: taxing paper gains without any cash flow;
• Liquidity risks: difficult-to-value or unsellable assets may create undue financial stress;
• Distorted market behaviours: premature selling to avoid tax, misaligning long-term investment strategies.
Common reform suggestions:
• Shift to a realisation-based tax model, taxing only when assets are sold;
• Allow indexation of growth calculations, filtering out temporary market fluctuations;
• Introduce a progressive tax structure, better aligned with ability to pay.
5. Legislative and Political Updates (As of Mid-June 2025)
• The policy has secured support from the Greens and is expected to pass in the Senate;
• The Liberal-National Coalition has pledged to repeal the tax if elected, and will likely campaign against it in the upcoming federal election;
• Dr. Steven Kennedy, current Secretary to the Prime Minister and former Treasury Secretary, is reportedly raising internal concerns about systemic risks;
• The SMSF Association and Financial Advice bodies continue lobbying for deferrals or liquidity exemptions.
6. Response Strategies for Investors and Businesses
Key steps to consider:
• Review your superannuation account composition, especially balances above AUD 3 million;
• Avoid major asset shifts near the cost base reset date, to reduce valuation risk exposure;
• Prepare liquidity plans to meet possible annual tax liabilities;
• Seek professional tax advice to design compliant and strategic superannuation tax plans.
▲ Conclusion
This superannuation tax reform marks a significant tightening of Australia’s tax regime for high-net-worth individuals. However, its current design, timing mechanisms, and enforcement logic raise serious concerns. For both private investors and institutions, proactive planning and cautious restructuring will be essential to navigate the 2025–2026 financial landscape.
