“This, combined with the drying up of available risk capital, could leave Australia’s entrepreneurial ecosystem severely weakened,” he said.

“Investors will be forced to focus on liquid, low-risk assets, dramatically altering investment behaviour and undermining longer-term wealth creation.”

The proposed tax on unrealised gains would set Australia apart globally, with no other major economy taxing unrealised gains in this fashion.

Green said the current proposal is aimed at normalising the idea of taxing unrealised gains, and once accepted within the super system, it will likely be expanded to cover all assets including shares, property, and private investments.

“[It will] force Australians to pay annual taxes on asset values regardless of whether they ever sell or profit,” he said.

“Compounding the problem, if asset values fall, taxpayers will not receive cash refunds for previously paid taxes; instead, they would carry forward losses, which may or may not be useful in the future.”

He gave an example of an SMSF that invests $1,000 in blue-chip ASX-listed shares, $500 in speculative unlisted start-ups, and holds $500 in cash.

“Suppose over a year, the listed shares rise 10 per cent to $1,100, and the start-ups surge in value to $5,000. The SMSF would then show a theoretical unrealised gain of $4,600,” he said.

“With a 30 per cent marginal tax rate, the fund would face a $1,380 tax bill. To pay it, the fund would be forced to sell all its listed shares and most of its cash holdings. If the start-ups collapse the following year, the fund could be left with almost nothing but an unusable tax loss carry forward.”

Green also said that the treatment of existing assets with significant unrealised gains remains unclear.

Furthermore, there is a risk of encouraging short-termism across Australian markets.

“Investors would be incentivised to sell assets every year to cover tax bills, resulting in a rolling 12-month investment cycle rather than building long-term portfolios,” Green said.

“This would hurt not only individuals but also start-ups and businesses that rely on patient capital to grow, particularly those offering illiquid or innovative investment opportunities.

“Even ordinarily liquid ASX-listed shares could become problematic under this system if, for example, investors are subject to escrow periods preventing immediate sale while still being taxed on paper gains.”