Equity concerns around unjustly taxing ‘paper profits’ ignored by Treasury
“It is unconscionable that Treasury is pushing this policy through with blatant disregard for the legal and equitable concerns raised with them.”
SYDNEY, 19 JUNE 2025: The proposed introduction of Division 296 into the tax law, which would see Australians taxed on unrealised gains (profits from the sales of assets that have not happened and may not even be planned), sets an unfair and dangerous legal precedent, says The Tax Institute.
Julie Abdalla, Head of Tax & Legal at The Tax Institute, says, “We absolutely support changes that make our tax system more equitable. No one is arguing against high wealth individuals paying their fair share. We are concerned that Treasury is introducing a legal precedent that says Australians can be taxed on money they do not have and may never have. There’s nothing equitable about that.”
The current balances held in superannuation were not achieved through a “tax rort”. They have been accumulated through Australians saving and investing, according to the rules set for superannuation at any given time. This includes farming properties and small business premises, which are expressly permitted under the law to be held in superannuation.
Treasury’s justification for flouting sound tax design principles seems to hinge on the estimated low number of individuals who will be impacted by the policy. But bad law is not acceptable just because it ostensibly targets a minority of people.
“It’s short-sighted. It’s appalling. It introduces a principle to our tax system that says you can be taxed on money you don’t have and, even more astonishingly, may never have. And because you don’t actually have that money, you may be forced to cash in investments or pull money out of your super savings to pay the tax bill. That’s not fair and it goes against the fundamental principles of our tax and super system.”
In some cases, this may mean the Government gets to double dip when it comes to raising revenue, with the taxpayer having to first pay tax on their unrealised gains in superannuation and then, again upon selling an asset to foot that bill, being hit with capital gains tax.
“It’s hard to see how this is anything but a cash grab. It is certainly not good tax policy. From the point of view of experts who work within the tax system every day, it’s a poorly thought-out, poorly-designed mercenary plan that’s being sold to Australians as a fair tax on the wealthy,” says Abdalla.
“Let’s be clear: this is not simply a tax on the wealthy. It will not benefit Australians in the long run. It will not fix the housing market crisis or equalise the effects of generational wealth. What it will do is destroy opportunities for small businesses in Australia and divert capital away from essential funding for start-up businesses, out of fear of being taxed on what can be rapidly accelerating growth in the value of these investments.”
If the precedent of taxing unrealised gains in super is introduced by the Government, where will this end? Taxing Australians on money they do not have and may never have is not just a worry for the wealthy. It puts all Australians on a perilous pathway to the taxation of entities and assets outside superannuation, regardless of wealth. This principle could be applied in the future to any entity or asset class, including share and property investments held by mums and dads. No one in government can dispute this risk if they are not prepared to clearly articulate their long-term vision for a fair and sustainable tax system and how a principle of taxing unrealised gains fits within it.
Consultation, or smoke and mirrors?
The Treasurer, The Hon Dr Jim Chalmers MP, has publicly said that, “We did multiple rounds of consultation, and we said to people, if there is a better, fairer way of making this calculation, tell us about it. … We provided years of opportunities for people to suggest different ways to calculate that liability, and nobody has been able to come up with one.”
Abdalla says, “The Treasurer’s comments are an indictment of Treasury’s consultation process and indicate an unwillingness to heed advice urged consistently by experts around the broad and long-term implications of the proposed policy.” She agrees that consultation happened – but that multiple better and fairer alternatives to taxing unrealised gains were in fact repeatedly presented in detail to Treasury, by The Tax Institute and other professional associations.
“It is unconscionable that the Government is pushing this policy through, with blatant disregard for the legal and equitable concerns raised by stakeholders. And it is particularly dishonest and disappointing to hear the Treasurer publicly state that no better solutions have been proffered, when many highly intelligent people and superannuation experts have presented various reasonable and workable alternatives.”
Abdalla says, “We have always engaged in consultation with Treasury in good faith – fairly, openly, and with the best interests of Australians at heart. I have to conclude that the Government is determined to push this legislation through, no matter what concerns have been raised during consultation or, perhaps more concerningly, with an inability to grasp why the proposed legislation rings so many obvious equity and policy-design alarm bells.
“We, and most Australians, would welcome an open discussion on any number of the many alternatives proposed, rather than venturing into dangerous waters with a tax on unrealised gains.
For more information on the policy design, ethical concerns and alternatives to taxing unrealised gains under Division 296, please see our full report here. Julie Abdalla is available for commentary.
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