Jamie Green, executive chairman of PrimaryMarkets, said this could happen across all investment vehicles if the tax is extended, not just super funds.
Green said if the Division 296 tax is passed under the next government, the mass withdrawal of money from super, especially from SMSFs, to stay under the $3 million threshold is a likely outcome.
“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.”
It would be funny if after introducing the 296 tax, the market went down 3 years in a row, nobody made any capital gains in super, and then a conservative government wins the next election and abolishes the tax. This is not beyond the realms of possibility. Remember when a previous Labor government brought in a mining “Super profits tax”, just in time for the mining boom to go bust, then the next coalition government abolished it.
Liquidating SMSFs was always the No 1 plan from the ALP-ISF cartel.
Fortunately, I am in a situation where we can transfer units out of our fund. It cannot be classified as tax evasion as I am looking after the assets that have been built up over more than 3 decades.
This is a “super theft tax” – designed to legally steal funds from people’s life savings where they are deemed to be too successful
Albanese says he wants the Liebor party to be aspirational for Australians. How pathetically two-faced. Aspirational until you are deemed to be too wealthy.
It seems that $3m is the line in the sand for being too wealthy and below that, just where they want you.
For the Greens, that line in the sand is $2m.
These people need to get their heads read. Sorry but I have no confidence anymore in superannuation. It is a pot of gold that they want to raid for their own pet projects, not my own life’s-savings left for me to look after myself so that I can remain independent and continue to contribute to society.
Certainly, this would be a massive hit to the confidence of Australians in the superannuation system and the government and Treasury in general. There are so many flaws in this and the government have shown that they are determined to get this flawed tax through. They need the money. They want to just take it, even though we can’t. I now call this tax the “Super theft tax”.
Over the last 5 years since I went over this threshold, I have done the maths for these years if this tax was in place. I have essentially lost any superannuation concession and in fact am penalised for being too successful. often the rate of tax is close to 3 times the current 15% that I pay, and one year it was 3.5 times more, overall.
Super theft tax? You bet.
Thresholds and percentages will change and the tax will likely be extended – always to suit the government – if this gets through.
For now, we can transfer assets at huge expense to a trust and pay 30%, but the fear is with an extension of this policy to trusts, we have to transfer again at great expense.
No way can Labor and Albo and Chalmers be trusted on this issue. They lied about it in the very first place, and yet, here we are.
Labor championed the superannuation industry – now they are raiding it. Why are other Labor members not standing up against this I ask?
Because they aren’t allowed to have a say under ALP rules.