Unrealised Capital Gains Tax Australia: 2025 Guide

Australia faces potential comprehensive tax system changes. The current Labor administration has introduced legislation for 30% taxation on unrealized capital gains within superannuation accounts exceeding $3 million.

After Labor’s win in the House of Reps and a friendly Senate after the 2022 election, Treasurer Jim Chalmers has confirmed the government will reintroduce the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill.

Prime Minister Anthony Albanese has endorsed these superannuation tax changes, with government ministers framing the policy as ensuring equitable tax treatment. The proposal carries significant implications for Australian investors and those planning retirement.

What You’ll Learn:

• How unrealised capital gains tax differs from traditional capital gains tax
• Why this affects all Australian investors, not just the rich
• Practical ways to protect your retirement savings
• Real examples of the tax’s long term impact

Unrealised vs Realised Capital Gains

When investors sell assets above their purchase price, they receive proceeds and pay tax on profits—these are realized gains. Unrealized gains represent theoretical profits where asset values have increased but no sale has occurred.

Australian tax law traditionally requires payment only upon asset disposal. The nation has historically applied capital gains taxation at the point of realization—when assets are sold and profits actually obtained.

Labor’s proposal changes everything. By moving the goalposts and taxing unrealised gains the government is opening the door to taxing you on money you haven’t actually received, fundamentally changing Australia’s productivity and investment landscape.

What is Unrealised Capital Gains Tax Australia

Unrealised Capital Gains ATO Guidelines and Implementation

The Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023, developed by Treasury officials, seeks to add Division 296 to the Income Tax Assessment Act 1997, establishing an additional 15% levy on qualifying superannuation accounts.

Implementation Timeline:

• Effective Date: Division 296 taxation begins 1 July 2025 for total superannuation balances exceeding $3 million
• Rate Structure: Supplementary 15% charge in addition to the standard 15% superannuation tax

• Calculation: Based on increase in total superannuation balance during the year
• Assessment: The ATO gets the member’s data from each fund, aggregates it and applies this formula – Superannuation earnings = TSB at end of year – TSB at start of year

Labor’s proposal would abolish traditional tax concessions and apply a 30% flat tax rate to all superannuation earnings — including unrealised gains — for funds over $3 million. 

The proposed changes would effectively increase capital gains taxation threefold and establish new tax obligations throughout the superannuation system.

Unrealised Gains Tax Australia Exemptions

Justices of the High Court, or justices or judges of a court created by parliament, who make super contributions to a superannuation fund established under the Judges’ Pensions Act 1968 are exempt from having Div 296 applied to those contributions. 

Chief Justices and other judicial pensions receive constitutional protection from these measures.

Exemptions:

• Constitutional judicial pension schemes and defined benefit pensions
• Certain defined benefit arrangements and defined benefit schemes
• Politicians’ superannuation schemes receive different treatment
• Defined benefit interests in APRA-regulated funds

But these exemptions are limited. While not an exemption category, constitutionally protected schemes and judicial pensions will be exempt from Div 296 tax. 

However, as TSBs from such schemes are included in the client’s Div 296 assessment calculation, the client’s other super balances may be subject to Div 296.

Why This Sets a Bad Precedent

Few OECD nations implement taxes on unrealized capital appreciation, and such measures are even less common within retirement savings frameworks. 

Australia’s 40 year old capital gains tax system has always focused on realised transactions, not taxing wealth that only exists on paper.

International Failures Show the Risks:

Norway’s experience with wealth tax modifications demonstrates potential risks: while generating $146 million in revenue, the policy led to a net fiscal loss of $448 million as wealthy individuals relocated $54 billion offshore, ultimately reducing overall tax collections by $594 million.

Norwegian entrepreneur Fredrik Haga says: “The only way to pay it was to sell shares and dilute my ownership in my company”.

Business leaders are terrified. CSL chairman Brian McNamee called it “frightening, shocking” and warned it would make Australia “a less attractive place to invest”.

If the government can tax unrealised gains in super, what’s to stop them from introducing a wealth tax on unrealised gains in your home, your business or your personal investments?

Unrealised Capital Gains Tax Australia Property

Impact on Property Investors and SMSFs

Property heavy SMSFs will be most affected by the new Div 296 assessment framework. Over 17,000 SMSF accounts in 2021/22 held farming land, over 3,500 will be immediately impacted by the new tax.

The Liquidity Crisis: Experts predict a 4 times increase in liquidity problems from 3.1% to 13.5% once we factor in members paying the additional tax. SMSF trustees will have to sell assets just to pay a tax bill on money they don’t have.

Farmers will be hit hardest. Older farmers often hold their assets in a SMSF and lease the business to their children, providing retirement income for them and succession planning. The new tax threatens this structure.

Unrealised Capital Gains Tax Victoria and Regional Considerations

The unrealised capital gains tax will affect different property markets across Australia. Victorian farmers and business owners with commercial property will have unique challenges due to state land tax and existing tax exposure.

Regional Property Issues:

• Rural properties are illiquid and hard to value
• Commercial properties may have to be sold to meet tax liabilities
• Family farming operations at risk of being disrupted
• Asset management gets more complex with deeming rate calculations

Agricultural families may face significant financial pressure, potentially forcing them to liquidate property to satisfy tax requirements or substantially raise rental costs for family successors, which could threaten the viability of inherited farming operations.

How to Avoid Unrealised Capital Gains Tax Australia

Smart planning can help you legally minimise or avoid this tax through strategic withdrawals and alternative investment structures. Financial advice from qualified professionals is essential as July 2025 approaches.

Options Available:

• Withdraw Before Threshold: If someone had $4 million in an SMSF during most of FY2026 but on 15 June 2026 withdrew $1 million, they would probably have no Div 296 tax liability.
• Alternative Investment Structures: Direct future investments into discretionary trusts for more control and tax flexibility. Look into investment bonds, company structures or direct ownership outside superannuation accounts.
• Asset Re-allocation: Investors are starting to re-allocate property out of superannuation funds and into other structures, such as family trusts or company entities. Moving income generating assets to avoid tax on paper profits.
• Multi-Member Fund Splitting: Splitting SMSF balances across multi-member funds or shifting to more liquid, low-volatility assets that can handle interest rate fluctuations.

Hudson Financial Planning recommends using the 90-day bank bill rate when planning liquidity strategies as market volatility can impact tax calculations.

Unrealised Gains Tax Australia Calculator and Real Examples

These real-world examples from parliamentary inquiries show how Div 296 tax calculations work in practice across different scenarios, showing the complexity of the tax.

Parliamentary Inquiry Case Studies:

Example 1 – Moderate Impact: Anne’s super balance: $3.2M → $3.4M

• Growth above threshold: $200,000 (only portion above $3M taxed)
• Additional tax: $30,000 (15% on growth above threshold)

Example 2 – Severe Impact: Bob’s super balance: $9M → $9.5M

• Growth above threshold: $500,000
• Additional tax: $75,000 (15% on all superannuation earnings, as entire balance exceeds $3M)

Market Volatility Scenarios:

Suppose an SMSF invests $1,000 in blue-chip ASX-listed shares, $500 in speculative unlisted start-ups, and holds $500 in cash. If the listed shares rise 10% to $1,100, and the start-ups surge in value to $5,000, the SMSF would show a theoretical unrealised gain of $4,600.

The investor pays tax on this paper gain. If markets crash next year and values fall, taxpayers will not get cash refunds for previously paid taxes; instead, they will carry forward losses, which may or may not be useful in the future.

Long-term Projections:

Economic projections indicate that reducing the threshold to $2 million would subject approximately 1.8 million Australians to increased taxation during their lifetime. Without indexation, AMP analysis shows this will hit the average Gen Z by the time they’re 59 thanks to inflation.

Venture Capital Impact:

SMSFs contribute around 25% of venture capital funding. Former UBS dealmaker said Labor’s new tax was a “wrecking ball” for small and medium-sized business capital. The fear is this will devastate Australia’s startup ecosystem.

Conclusion

Australia’s proposed unrealised gains tax is an attack on fundamental taxation principles. Norway’s similar policy caused a $54B wealth exodus, proving these taxes drive capital flight nationwide.

While targeting 80,000 wealthy Australians initially, unindexed thresholds mean millions more will be caught in the future. Today’s “wealthy-only” policy becomes tomorrow’s middle-class burden through inflation.