The Australian government’s proposed superannuation tax on unrealised gains continues to spark heated public and political debate. Targeting high-balance retirement savers, the reform aims to reduce the generosity of tax concessions for the wealthiest superannuation holders.

However, as of May 2025, the measure has not yet become law. The bill has passed the House of Representatives, but its future lies in the hands of the Senate when Parliament resumes later this year. While the policy is slated to come into effect on 1 July 2025, its passage is still uncertain.

Here’s what you need to know about the proposal, its implications and what you can do to prepare.

What Is the Superannuation Tax on Unrealised Gains?

Officially titled the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023, this proposed legislation introduces a new 15% tax on earnings – including unrealised capital gains – for individuals whose total superannuation balance exceeds $3 million.

Key features of the proposal include:

• The tax is levied on earnings proportionate to the portion of the balance above the $3 million threshold.
  
• Earnings are defined by the increase in your total superannuation balance over the financial year (adjusted for contributions and withdrawals).
  
• Importantly, it includes unrealised gains – increases in value of assets that have not been sold or converted to cash.
  

What’s the Current Status?

As of 20 May 2025:

• The bill passed the House of Representatives in 2024.
  
• It is now awaiting review in the Senate, where the Greens hold the balance of power.
  
• The Coalition opposes the bill, while the Greens have indicated they may support it, but are pushing for amendments – including indexing the $3 million threshold.
  

If passed in its current or amended form, the law would apply from 1 July 2025, with the first tax assessments occurring in the 2025–26 financial year.

Why Is It Controversial?

The proposed superannuation tax on unrealised gains has drawn strong criticism, particularly from financial commentators, older Australians, and SMSF holders. Here’s why:

1. It Taxes Unrealised Gains

Traditionally, Australian tax law applies taxes only when an asset is sold (i.e. gains are realised). Taxing theoretical value increases is highly unusual, and may force some individuals to sell assets to meet tax obligations.

2. No Indexation

The $3 million threshold is not indexed to inflation or wage growth. This means that over time, more Australians – especially younger workers – may be captured by the tax despite making average earnings.

According to AMP Chief Economist Diana Mousina, a 22-year-old earning average wages could breach the threshold by retirement, simply due to compound growth.

3. Liquidity Concerns

Taxpayers could be required to pay tax on asset gains that haven’t produced income. For SMSFs holding illiquid assets (like farmland or commercial property), this poses significant financial strain.

4. Political U-turn

The Albanese government promised before the 2022 election not to make changes to superannuation taxes. The introduction of this policy has been viewed as a breach of trust by some.

Who Might Be Affected?

• Treasury estimates around 80,000 Australians – or just 0.3% of working-age individuals – will be affected when the policy first takes effect.
  
• However, due to lack of indexation, that number is projected to increase steadily each year.
  
• The tax will most significantly impact older Australians, self-managed super fund (SMSF) holders and those with property-heavy portfolios within their super accounts.

Example: How the Tax Might Work

Let’s say Susan has $6 million in super on 30 June 2025. Over the 2025–26 year, her super balance increases to $7 million – a gain of $1 million.

• The portion of her balance above $3 million is $4 million, or 57% of the total.
  
• 57% of her $1 million gain is $570,000.
  
• The 15% tax applies to that, resulting in a tax bill of $85,500 – even though Susan may not have sold any assets.
  

What Happens Next?

Parliament is expected to resume in late July 2025, where the Senate will decide the bill’s fate. Possible outcomes include:

• Passing the bill unchanged (most likely if Greens and Labor agree).
  
• Amending the bill – possibly to include indexation or adjust the threshold.
  
• Delaying or rejecting the bill, though this is less likely given Labor’s renewed electoral mandate.
  

What Should You Do?

Even though the superannuation tax on unrealised gains is not yet law, there are proactive steps you can take:

1. Review Your Superannuation Balance

Forecast your total superannuation balance growth to assess whether you may be affected in the near or long term.

2. Consult a Financial Adviser

An adviser can help model your exposure, recommend diversification strategies and explore how to manage illiquid assets in your SMSF.

3. Monitor the Legislation

Keep up to date via treasury.gov.au, ato.gov.au, or aph.gov.au to understand changes as they occur.

4. Understand Cash Flow Implications

If you hold property or private equity within your super, understand how you’d fund a tax bill without realising those assets.

Final Thoughts

The superannuation tax on unrealised gains is one of the most significant proposed changes to retirement policy in recent memory. While aimed at reducing inequality and budgetary pressure, its design – particularly the inclusion of unrealised gains and lack of indexation – raises both economic and ethical concerns.

For now, it remains a proposal. But given its scheduled start date of 1 July 2025, Australians with high super balances should stay alert, stay informed and seek tailored financial advice.

Disclaimer: This article is current as of May 2025. It provides general information only and does not constitute financial advice. Please consult a licensed financial adviser for advice relevant to your situation.