Ask the Expert: How exactly will the proposed super tax affect you?

Question 1

I am an avid reader of your columns and would like to ask this question – I have read numerous stories on taxing unrealised gains under the tax proposals for super funds with more than $3 million, and I was still confused about the possibility of a “double taxation” of capital gains every year.

I ran an example through ChatGPT where the amount goes above $3 million to $4 million and then in the following year it falls back to $3.5 million. The answer given seems to suggest that although you get no refund of tax already paid, you do get a credit, if in subsequent years your assets decline in value on a year-to-year basis.

I’m not sure if this is correct, as these AI programs do tend to make errors, but I have not seen anyone in any article refer to a Division 296 tax credit, if such a thing does exist.

This proposed tax certainly has been given a lot of publicity given, in my opinion, its modest nature.

To recap, the federal government has proposed to reduce superannuation tax breaks for people who already have a lot of money in their super fund. For this tax, “a lot” means $3 million or more. Technically the tax is called Division 296.

Currently superannuation accumulation fund investment earnings are taxed at a maximum rate of 15 per cent.  However, capital gains over 12 months receive one-third discount, effectively reducing the tax rate to 10 per cent on realised capital gains.

There may be other deductions a super fund can make to reduce the headline rate to even less. When in retirement phase, investment returns are tax-free. 

The proposal is to impose an additional 15 per cent tax on those earnings – but only on the balance that exceeds the $3 million threshold.

There has been some controversy around the fact you will pay the additional tax on the paper capital gain, i.e. even though you haven’t sold it yet.

But you and ChatGPT are broadly correct. If an individual makes an earnings loss in a financial year, this can be carried forward to reduce the tax liability in future years. (Assuming you both leave the money in super and do make a future capital gain).

It’s important to note this is still to be legislated so we will need to review once, and if, it does.

To put things in context, the Association of Superannuation Funds of Australia ran some case studies that were interesting and can be found here.

A summary of findings is below (The examples are for illustration purposes only and based on information about the proposed tax current at June 5, 2025).

Can capital gain tax be calculated by the ‘indexing method’?

When working out how much “capital gain” you have made, and the associated capital gains tax, you may have various options.

If you have held the asset for longer than 12 months, most people use the “discount” method. That is, they get to reduce the gains by 50 per cent and then pay income tax on that amount. This is normally the most generous and easiest method.

You may be able to use the “indexation” method in limited circumstances, including only on assets already held. Specifically, in the following circumstances:

• a CGT event happened to an asset you acquired before 11.45am AEST on September 21, 1999, and
• you owned the asset for 12 months or more.

If you have held an asset for less than 12 months, you can’t use the indexation or discount method. You have to pay CGT on the whole gain. Technically, the ATO calls this the “other” method.

The ATO provides this little diagram:

The indexation method was a fair way of calculating CGT as it accounted for inflation while you owned the asset. The discount method is very generous. Some would say too generous.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

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