As the pressure mounts on Treasurer Jim Chalmers to not proceed with his super tax that hits those with over $3 million in super, it’s time to consider some of the little understood aspects of this significant tax change.

Last week I went to the Italian town called Alberobello in Puglia, where they have pointy-roofed homes called trulli houses that reportedly were demountable ahead of the tax collector in the 1200s!

Since the dawn of time, people have been slugged with taxes. In 1088, William the Conqueror (who claimed England for the French) had the Domesday Book created. He wanted to know what people owned so he could tax them accordingly. Even Jesus did promotional work for the Roman Tax Office, telling his followers that they should give to Caesar what was due to Caesar!

Dr Jim’s new tax is significant. It not only shows that governments now (and in the future) can change the rules and tax rates on our super (which is a compulsory 11.5% take for employees on wages and salaries in Australia), but it also brings a tax on unrealised capital gains.

This means if you have $3 million in your super and you make $100,000 on the stock market or on your investment property in your super, you’ll pay an extra 30% on these related gains not in your bank balance but only on paper.

What follows are the many issues that might affect you and your family going forward.

1. The Greens, whose help the Government needs to pass this bill, want this super tax to cut in at $2 million rather than $3 million. It would capture another 50,000 super trustees. (Chalmers will fight this.)
2. Treasury says 80,000 or 0.5% of Australians will pay the tax.
3. About $2 billion will be raised.
4. The AFR’s John Kehoe says the average assets of the 1.15 million SMSF members was $835,265 in 2022-23, according to Australian Tax Office data.
5. Some 2.7% (about 31,000 people) had account balances between $3 million and $5 million.
6. 42 Aussies have over $100 million in their SMSF!
7. The 10 largest SMSFs had an average of $422 million each in assets.
8. The Grattan Institute estimates the 100 richest SMSFs receive about $215 million per year in earnings tax concessions. About $140 million of this went to the 42 accounts that have more than $100 million in assets, while $70 million flowed to the 10 biggest SMSFs (AFR).
9. Peter Burgess, chief executive of the Self Managed Superannuation Associations says these people will pay tax twice on unrealised gains each year and the usual capital gains tax on the multi-year increase in an asset’s value upon sale.”
10. Paul Keating, Alegra Spender and Zali Steggall oppose the taxing of unrealised gains.
11. Paul Keating also opposes the fact that the $3 million benchmark is not indexed. He called it “unconscionable”. Treasury estimates the top 10% of taxpayers would be impacted in 30 years if the $3 million threshold is not indexed. The Financial Services Council projects more than 500,000 people who are working today will be caught by this tax over their lifetime.
12. Money that goes from super to start-up companies and fast growing businesses will be less forthcoming out of super because of the tougher tax implications when these companies become a great success.
13. The recent market rout shows that if this tax on unrealised gains was in place when the stock market collapses after a big year of gains, a super trustee would have to pay a tax bill on those gains out of a portfolio that has been decimated by a crash! That’s a double slug to these people’s super!
14. On unrealised gains, you’d pay tax on said gains but there will be no refund on unrealised losses! The ATO will let you deduct losses off future gains, but markets historically rise 7 or 8 years out of 10!
15. Other investments, such as investment bonds, will become popular. Why wouldn’t someone invest more in their family home that’s capital gains tax free?
16. House prices will spike as the property outside of super becomes more rewarding.
17. Farmers and small businesses with their properties in super will have either cashflow problems or will have to sell assets to pay taxes on their unrealised gains.
18. All this comes with the Tax Office code of Division 296. While all this is a worry, the news has become decidedly dodgy when you learn that special rules for calculating and levying Division 296 allow the following earners to be excluded:

• Individuals with defined benefit interests (i.e. politicians and public servants) with $3m+ in super.
• State higher level office holders with superannuation contributions to constitutionally protected funds.
• Commonwealth justices and judges.
• Territory Supreme Court judges.

19. Be clear on this, the 30% tax will be applied to that proportion of a super fund’s gain over the $3 million threshold. The calculation will be complicated and creates work for accountants and super fund administrators. Also, anyone who has say $2.7 million in their fund could start withdrawing assets to avoid the $3 million trap, which could be bad for their overall super fund balance in the long run. Finally, if there are two members in the SMSF and the fund’s balance is say $4 million and one member’s balance is over $3 million, they could withdraw funds and add that to the other member’s balance, which could help avoid the tax.
20. This super tax change will shrink the nest eggs of 80,000 super trustees but it also shrinks the inheritances of a lot more Australians. Many super funds proceeds are passed on to family members and that will be the knock-on effect of this super tax.

All Australians need to understand this final point. Inevitably, if taxing unrealised gains is accepted, it will one day apply to home values over a certain price level and could be applied to many other assets outside of super.

We have a poor tax system but politicians from both sides of politics haven’t had the guts to raise the GST to 15% and cut income taxes.

As a consequence, we see taxes like these being introduced in a piecemeal fashion. Typically, they’re not explained, and Australians are taken for a ride.

By the way, don’t think I’m squealing because I’ll be negatively affected. In fact, because Labor is making super more difficult to understand and therefore making other investments more attractive, my financial planning business will attract more clients who really will need a lot more help!