Unrealised Capital Gains Tax: The Implications for the Wealthy in Australia and Beyond
In a recent video, Buyers Agent and Accountant, Luke Wiles, discussed the introduction of a new tax in Australia that has the potential to significantly impact high-net-worth individuals and businesses. The Australian government has announced plans to implement an "unrealized capital gains tax" on superannuation (retirement) account balances exceeding $3 million. This new tax represents a significant departure from the existing tax system in Australia, which has traditionally only taxed capital gains when they are realised, i.e., when the asset is sold. The unrealised capital gains tax, however, will require individuals to pay taxes on the increase in the value of their assets, even if they have not been sold.
The implications of this new tax are far-reaching. Luke explains that it will primarily affect the wealthy, including business owners, high-net-worth individuals such as doctors and lawyers, and even farmers who use their superannuation to own and control their farms. One of the primary concerns raised is the issue of liquidity. Many of these individuals may have a significant portion of their wealth tied up in illiquid assets, such as real estate or private businesses. Selling a portion of these assets to pay the tax could be challenging, if not impossible, due to the time and complexity involved.
Luke acknowledges that the superannuation system has been "abused" by the wealthy, who have been able to use it to hold and control high-value assets in a highly tax-effective environment. He believes that the government's move to introduce this tax is a reasonable attempt to balance the system and ensure that the wealthy pay their fair share. However, Luke also recognizes the potential pitfalls of the new tax, particularly the liquidity issues that may arise. He suggests that individuals with superannuation balances over $3 million may need to work closely with their accountants to restructure their portfolios, potentially moving assets outside of the superannuation system to avoid the tax.
The video also raises the question of whether a similar tax could be implemented in the United States. Luke notes that the introduction of an unrealized capital gains tax in the US would likely face significant opposition from the wealthy, who would likely fight to maintain the current tax system.
