Let's call this what it is: a policy that claims to target the ultra-wealthy, but in practice, punishes middle-class Australians who've played by the rules and planned strategically, especially those using property to build a retirement safety net.
The federal government's proposed tax on unrealised capital gains for superannuation balances over $3 million isn't a minor tweak. It's a fundamental shift that threatens the one realistic pathway many middle-income earners have to retire with dignity: leveraging property through their self-managed super funds (SMSFs).
Under the policy, earnings on the portion of a super balance above $3 million, whether realised or not, would be taxed at an additional 15% on top of the current concessional rate of 15%.
Who has $3m in their super without property?
People who accumulate $3 million in super without investing in property are either earning in the top 1% of incomes, or they were born lucky.
According to the ABS, the average income for a 30-year-old is around $78,000-$83,000, and the average super balance sits around $53,000. If they continue to earn that income (assuming wage growth and inflation cancel each other out) until retirement at 67, their super balance would reach around $594,000.
Now, applying a 5% yield: that's $25,000 per year in retirement income - a figure that is lower than the age pension ($29,024). According to the ASFA Retirement Standard, this means they will struggle to pay for emergency repairs and afford essentials like haircuts and new clothes when needed. At $25,000 a year, without home ownership, they will be living below the poverty line.
No one wants to face years of retirement (life expectancy in Australia is 81 for males or 85 for females) struggling to make ends meet.
For middle-income Australians, property is one of the few viable paths to building a stronger super balance in retirement. A real estate investment could enable them to actually enjoy their 'golden years', rather than stressing about affording heating in winter or cooling in summer.
Property investment allows for leverage and delivers long-term compounding growth. And if you've managed to buy property now, as one of those middle-income Australians who have planned strategically for the future, the tax on super balances exceeding $3 million may not impact you right now, but it will sooner than you think.
Now, say you're a 30-year-old who has just managed to buy a median-priced Australian house (currently around $821,000, per PropTrack) within your SMSF. National performance data from PropTrack shows an average of 4.6% annual growth on median property values. Before you retire at the age of 67, some four years prior, that home you bought for $821,000 could be worth more than $3 million.
You've hit the $3 million cap in your super fund through just one strategic investment property, without even considering the ongoing super contributions from your employment or any other investments.
Without indexation, this super tax will catch up with you before you retire, especially with new government policies around housing likely to inflate property prices. And if you already own properties in your SMSF, that extra 15% super tax could be relevant to you even sooner.
As the policy stands, you'll be taxed on that paper gain, even if you haven't sold the property or seen a cent from it.
Volatile valuations with real consequences
What makes this especially dangerous is that valuations can swing wildly year to year. A strong year followed by a weak one doesn't just impact paper returns; it could mean paying tax one year and having no gain to show for it the next.
For SMSF trustees with property in their portfolio, it introduces uncertainty into what was meant to be a predictable, long-term strategy. It also discourages further contributions and undermines confidence in super as a reliable investment vehicle.
What property investors are doing - or should do - instead
We're already seeing a shift. Our clients, many of whom are committed property investors, are reducing their SMSF contributions, exploring family trusts, and transferring existing property out of super altogether. And it's not about tax avoidance; it's risk mitigation.
Advisers and accountants are urging clients to consider:
- Distributions into discretionary trusts to hold property and maintain flexibility
- Transitioning new purchases outside of super, particularly if nearing the cap
- Regular valuations and forecasts to monitor exposure before breaching thresholds
- More diversified portfolios that include liquid assets to help manage volatility
It's not just billionaires who are affected
Contrary to political spin, this policy doesn't just target billionaires. It will impact a growing cohort of middle-income and everyday Aussies who have planned strategically to retire comfortably without relying on a pension that will leave them living in poverty.
Many of those who will be affected don't have multimillion-dollar salaries or inheritances.
What do you need to do?
Don't panic - plan. These changes are complex, but with the right advice, you can navigate them confidently.
- Get a valuation of your SMSF assets, especially property, to assess your position relative to the cap.
- Speak to your accountant or advisor about rebalancing your portfolio to mitigate risk.
- Explore whether new investments should sit inside or outside your super, based on your long-term retirement goals.
- Consider the use of trusts or corporate structures if you're looking to grow your portfolio beyond the super cap.
This policy isn't just a threat to the superannuation system. It's a direct hit to those who have chosen property as their retirement strategy. And unless there's a change in direction, it may well reshape how the next generation of Australians approach financial independence.
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