Super Saver Win: Government Scraps Plan to Tax Unrealised Gains in Super Funds

Richwood Accountants
Oct 13
3 min read

A backflip bringing relief to millions of Australians saving for retirement.

In a major policy reversal announced today, the government confirmed that unrealised gains in superannuation funds will not be taxed.

This decision comes after months of debate and concern over a proposed rule that would have taxed investors on profits they hadn’t actually made yet — known as “unrealised gains.”

What Was Going to Happen

Under the original proposal, if your total super balance (TSB) exceeded $3 million, an additional 15% tax – known as Division 296 tax – would have applied to the earnings from the portion of your super balance above $3 million.

This effectively could have meant some earnings were taxed at 30%, instead of the usual 15% that super funds pay.

How Division 296 Tax Was Calculated (Example)

Your taxable superannuation earnings under Division 296 are calculated as follows:

(TSB at end of income year less $3,000,000) divided by TSB at end of income year, multiplied by super earnings for the year.

For example:

TSB at 30 June 2025: $3.5 million
TSB at 30 June 2026: $4 million
Super earnings: $500,000

Taxable earnings = ($4,000,000 - $3,000,000) / 4,000,000 x 500,000 = 125,000.

Division 296 tax: $125,000 x 15% = $18,750

While there are additional rules and exceptions, this gives the gist of the new tax.

Why it was controversial

Under the original proposal, people could have faced tax on unrealised gains – increases in the value of investments that hadn’t been sold yet.

For example:

TSB last year: $3.2 million
TSB this year: $3.4 million
Increase: $200,000 (all “on paper” i.e. you haven’t sold anything, it’s not real money in your pocket)

If the proposal had gone ahead, that paper profit could have been taxed even though your balance might drop again in future years.

This would have made superannuation far more complicated, unpredictable, and unfair, especially for people with investments that fluctuate in value, like property or shares.

How Your Total Super Balance Is Calculated

Your super balance is the total current value of everything your super fund holds for you, including:

Cash and term deposits
Shares (Australian and international)
Property or infrastructure investments
Managed funds and other assets

Each of these assets fluctuates with the market. So, if the stock market rises or your fund’s property investments increase in value, your balance on paper grows, even if you haven’t sold anything or actually received that money yet.

That’s why taxing unrealised gains was so controversial: your balance could look bigger today, but that doesn’t mean you’re richer or have cash to pay extra tax.

What’s Happening Now

The government has now confirmed that unrealised gains won’t be taxed after all.

Tax will continue to apply only when gains are realised — meaning after you sell an investment and actually make a profit.
If your super investments increase in value, you won’t owe any extra tax until you cash in that profit.
This aligns with how almost all other investments are taxed and avoids creating unnecessary paperwork, stress, and volatility in retirement planning.

The 15% tax on earnings above $3 million remains, but it applies only to actual earnings, not to unrealised increases in asset value.

Why This Matters

For everyday Australians, this decision means:

No surprise tax bills just because your super balance rises.
Simpler and fairer rules for retirees and investors.
More stability for long-term super strategies.

Most importantly, the proposed tax on unrealised gains is dead in the water — for now. We’re relieved about this, as our concern was that once such a tax was introduced for superannuation, it could easily pave the way for broader application — first across all of super, then extending beyond it to everyday Australians. That could mean taxes on unrealised gains from shares, investment properties, and, in time, even the family home if the main residence exemption were ever removed.