Federal treasurer Jim Chalmers has abandoned plans to tax the unrealised gains of large superannuation balances, a controversial move that raised alarm bells for investors in early-stage startups.
The change ends fears that angel investors, who often back startups from self-managed super funds (SMSFs) would vanish had the government implemented the new rule as part of broader changes to superannuation for people with balances over $3 million. It also had the potential to hit small business owners with super assets like the shop they own and operate from.
Labor’s original plan included a new 15% tax on the portion of superannuation balances above $3m, which Chalmers called a “modest” change affecting the 0.5% of Australians with jumbo-sized super balances. That new tax, bringing the overall earnings tax on super balances worth $3m and over to 30%, was to include unrealised gains — that is, the increasing value of assets held within a super fund, even if those assets were not actually sold.
Critics in the accounting and self-managed super fund sector feared the policy would slug small business owners holding commercial property or farmland in their fund, forcing them to pay tax on appreciating but illiquid assets.
Around 13,000 SMSFs, worth $3 million or above include commercial property of some kind, according to the SMSF Association, which criticised the plan.Instead, the new 30% total concessional tax rate will apply to earnings on balances between $3 million and $10 million, and apply only to future realised earnings.
Past $10 million, the total concessional tax rate applied to earnings will be 40%. Treasury will consult on the best mechanism to calculate and tax those future realised gains.
And both the $3m and $10m caps will be indexed, assuaging fears that middle-income earners would be exposed to the extra tax through bracket creep in years to come.
“These are sensible changes which take two years of feedback into account while still maintaining the main objectives of our policy,” Chalmers said.
“The original model was the best option identified at the time. But we have taken the decision to adjust the model to recognise the views we have heard since then.”
CPA Australia, which had called the proposed tax on unrealised gains a “fundamental breach” of Australian tax principles, welcomed the announcement.
“This was a particularly egregious element of the government’s initial proposal,” said its superannuation lead Richard Webb.
“Providing certainty and financial stability for this and future generations of retirees is critical. Taxing unrealised gains would have distorted our tax system, which needs broader reform.”
Chalmers added that the government intends to expand the low‑income superannuation tax offset (LISTO).
Currently, those earning up to $37,000 per year can recoup 15% of the concessional super contributions they make, up to a cap of $500.
Labor plans to grow the LISTO by lifting the income threshold to $45,000 and the cap to $810 on July 1, 2027.
The changes are subject to legislation, with Chalmers saying federal Labor hopes to negotiate with the Greens — who originally called for a $2 million threshold, and indexation — to move the bill through the Senate.
Industry reaction
Scrapping the unrealised gains tax was welcomed by the startup sector.
Caroline Breeze, CEO of ASX-listed startup investor and services provider Scalare Partners, said the news was “a relief” for investors and the sector more broadly.
“The earlier proposal risked penalising investors for growth that existed only on paper. It would have added unnecessary complexity and created yet another barrier for super funds, family offices, and sophisticated investors considering exposure to early-stage Australian technology companies,” she said.
“That would have driven a loss capital into the very part of our economy that drives productivity, job creation, and global competitiveness — innovation. It’s a sensible outcome that protects the integrity of our superannuation system while ensuring Australia remains an attractive and stable destination for long-term investment in innovation and growth.”
Jack Qi, partner at startup specialist accounting practice William Buck said that by indexing the threshold, the government “has done the right thing” by future taxpayers.
“Some modelling suggested that a large proportion of today’s younger generation of workers would have more than $3m in their super at some point in their long careers,” he said.
“Similarly, by ditching the taxation of unrealised gains the Government has done itself a favour – it would have been an administrative mess that adds further red tape and tax controversy for questionable revenue gain. A cottage industry based on shaky asset valuations would have sprung up overnight, and things like this are not what our tax system needs.”
David Burt, director of entrepreneurship at UNSW Founders said any tax on unrealised gains would have destroyed early stage startup funding in Australia.
“So it seems like good news that this has been removed. However, I wouldn’t celebrate until we see the detail of legislation that’s still to be introduced in Parliament,” he said
“Also, this circus is a great reminder that Government can’t design good policy without involving people from the community, so hopefully any future policy changes involve significantly more consultation with the startup ecosystem.”
Rehan D’Almeida, CEO of FinTech Australia, said investors need regulatory certainty, to make long-term venture capital investments.
“FinTech Australia welcomes the Treasurer’s decision to moderate the Government’s super tax proposal, which comes at a critical time,” he said.
“The startup funding environment is going through a challenging period and this measured decision will provide welcome relief to many startups.”
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