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Australia’s Plans to Tax Unrealized Gains Would Set Off “Millionaire Exodus”

David Lesperance predicts wealthy will flee Australia over unrealized gains tax: "super rich are no longer sticky."

David Lesperance predicts wealthy will flee Australia over unrealized gains tax: “super rich are no longer sticky.”

Australian Treasurer Jim Chalmers has confirmed the Australian government plans to reintroduce its Division 296 tax proposal that would impose an additional 15% levy on earnings from superannuation balances exceeding $3 million. This addition to the existing 15% tax effectively creates a 30% rate on portions of retirement savings above the threshold.

The most contentious aspect of the legislation targets unrealized capital gains. Superannuation account holders will face taxation on asset appreciation even without selling those assets, creating potential liquidity challenges.

According to Chalmers, “the tax will only impact 0.5% of people with super balances over $3 million.”

The proposal applies a proportional formula: If half of a person’s balance exceeds the threshold, then half of their annual earnings will face a higher tax rate.

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Treasury projections indicate the measure will generate $2.3 billion in fiscal year 2027-28 and approximately $40 billion over a decade. The tax aligns with Labour’s economic agenda while targeting what they characterize as excessive tax concessions.

Implementation Challenges and Criticism

David Lesperance, Managing Partner at Lesperance & Associates, believes that “leaving aside the ethics of taxing unrealized gains, it is fundamental to understand that Self Managed Super Funds (SMSFs) can invest in a wide range of assets, including non-publicly traded assets such as private companies, residential and commercial property, and collectibles.”

This diverse portfolio approach creates the same fundamental difficulties that caused other countries to abandon similar wealth taxes.

The core problem, according to Lesperance, stems from “the inability to annually accurately establish the fair market value of the assets. Taxpayers inevitably state a low value, and no tax authority has the bandwidth to annually challenge that value.”

Governments typically respond by either imposing unrealistic values that drive wealth abroad or eventually abandoning the tax entirely.

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Self Managed Super Fund Association Chief Executive Peter Burgess told SMSF Adviser that trustees “might need to sell assets just to pay a tax bill on money they don’t yet have,” which means “even more people will be impacted by this tax on unrealized capital gains.”

The historical pattern of tax policy evolution concerns Lesperance, who notes that “wealth taxes like income taxes are always introduced ‘only against the wealthy,'” but “an honest review of the history of tax policy shows that this inevitably is expanded to include an ever-expanding definition of wealth.”

He says the expansion becomes particularly problematic because “the reality is that greater wealth equates to a greater ability to make and maintain wealth anywhere. In short, the super-rich are no longer sticky, and if the force of taxation is greater than life inertia, the wealthy will move.”

A private analysis supports this concern, showing that reducing the threshold to $2 million could affect nearly 1.8 million Australians over time.

There are concerns that the policy could redirect investment away from venture capital and other long-term illiquid assets.

This shift could impact Australia’s broader economic landscape as SMSFs contribute substantial funding to the venture capital sector.

Political Prospects After Electoral Victory

The Australian Labour Party secured a decisive victory in the May 3 election, capturing more than 90 seats in the 151-seat House of Representatives.

This electoral success has empowered Prime Minister Anthony Albanese, the first Australian leader to win consecutive elections in over 20 years, to advance his government’s controversial superannuation tax legislation.

The legislation’s path through the Senate remains uncertain despite Labour’s strengthened parliamentary position. The Greens, who hold the balance of power in the upper house, have previously supported the bill on condition that the threshold decrease to $2 million.

If the government does implement this tax proposal, Lesperance warns that “Australia will join the ranks of countries like the UK who are trying to squeeze more eggs from their Golden Geese.”

The unfortunate reality, he maintains, is that “Australia will experience the same millionaire exodus to other countries which have lower tax burdens for these new arrivals.”

Parliament reconvenes in late July, setting the stage for what may become the first major policy test of Albanese’s second term.

The government has positioned the tax as a modest change affecting only the wealthiest Australians, while opponents frame it as a fundamental departure from established taxation principles.

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