You can't go broke taking a profit

The proposed changes will increase the maximum headline marginal tax rate on superannuation fund earnings from 15% to 30% for earnings corresponding to the proportion of an individual’s Total Superannuation Balance (TSB) that is greater than $3 million. The reforms introduce a new Division 296 into the Income Tax Assessment Act 1997. Earnings from superannuation assets below the $3 million threshold will continue to be taxed at just 15% or exempt from income tax if held in a retirement pension account.

 

 

But you could go broke NOT taking a profit if the Division 296 tax on unrealised capital gains on superannuation balances over $3 million as proposed by Labor is passed by Parliament. Then you would be sent a tax bill once a year for 15% of the increase in value of all your super-annuation investments over the past twelve months.

15% tax on such unrealised "paper profits" may be far more than those investments generated in income, in which case you may have to be partly liquidate them. This may not present too much of a problem with shares but how do you partly liquidate a real estate investment?

And having paid 15% tax on such unrealised "paper profits" in one year, you may see the same "paper profts" quickly evaporate in the next, but you would receive no refund of the tax already paid on them. The only provision in the proposed bill would be for such "paper losses" to be carried forward and deducted from "paper profits" in future years.

To my knowledge there is no other country in the world that taxes unrealised profits which would make Division 296 another Australian first, IF IT IS PASSED BY PARLIAMENT. Until then, worry now, pay later!

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