Unrealised capital gains are already taxed in Australia, claims minister
Assistant Treasurer Stephen Jones has claimed it is “simply not true” that unrealised capital gains are not taxed anywhere else in the world.
Minister Jones was speaking in response to amendments put forward on Wednesday by independent member for Wentworth, Allegra Spender, to the proposal to tax unrealised capital gains.
Spender’s amendment called for the exclusion of taxing unrealised gains in the design of the policy, as well as a scheme that allows entities to defer their assessed Division 296 tax for an income year if the conditions provided for in the scheme are met.
Additionally, Spender called for the minister to “cause an independent review of Schedule 1 to be conducted as soon as practicable after this act receives the royal assent”.
“The review must include a review of the impact, or potential impact, of Schedule 1 on the start-up and high-growth sector,” the amendment stated.
“ The persons who conduct the review must:
(a) consult with the public in conducting the review; and
(b) give the minister a written report of the review in sufficient time to enable the Minister to comply with subsection (4).
(4) The minister must cause a copy of the report of the review to be tabled in each House of the Parliament before 1 July 2025”.
Minister Jones said there were a range of unrealised capital gains taxed in Australia.
“Whether it's land tax, the taxation arrangement on APRA-regulated funds, stock-in-trade arrangements on businesses — there's a whole range of taxes that currently apply, in Australia and elsewhere around the world, to unrealised capital gains,” he said.
Shadow assistant treasurer Luke Howarth said the proposal to tax unrealised gains will hit retirees, superannuants, farmers, and small and family business owners the hardest.
“They may have to sell assets all because there has been a capital gain. I could go to anyone in Australia, people in the gallery or anyone else, regardless of what they earn, and ask, 'Do you think that there should be a tax on unrealised capital gains?'” he stated.
“I could say to people in the gallery: 'You bought a house for $500,000. It's now worth $800,000. You haven't sold it yet, but the government wants tax on $300,000 because that's your capital gain.' That is what this Albanese government is doing to Australians right now with this bill, and we in the coalition oppose it. I'd ask people who are listening around the place, is that a major change to super? I think it is.”
Impact on venture capital
Spender added that one of her concerns with the taxing of unrealised gains was the impact it would have on venture capital in Australia and start-up companies that rely on investment, particularly from the SMSF sector.
“I'm concerned about how this plays out in practice, and I'm going to focus particularly on the venture and technology sector,” she said.
“Australia has lower investment in venture than other countries. We have about a third of the rate of investment in young, growing firms — venture capital — than the US, and about half that of the UK. We have a productivity hole. We know we need to grow it, and we know that young, growing firms drive productivity in this country.”
She added that according to the Tech Council, around 25 per cent of money that goes into venture comes out of SMSFs.
“Venture is volatile, and it is illiquid. Therefore, if we are going to be taxing unrealised gains on venture firms, which are both volatile and illiquid, there is a real danger that people in self-managed super funds are just going to move that money out of venture and into other areas — maybe the listed index,” she said.
“They are going to miss out from a returns point of view, and we as a country will also miss out, from the point of view of not having that investment in venture firms that is critical to future growth and productivity.”
Minister Jones responded he has also looked at the issue in relation to venture capital and start-ups.
“I was concerned that this would be an issue at scale. On the data available to me, it's not. Less than 3 per cent of the total assets, and that is the very top end of funds, would be invested in these classes of assets — that is, if you were to include all debt securities, all unlisted shares and all loans in that class of assets,” he said.
“Clearly that's not true either. So, at the very top end, it's 3 per cent of those types of assets. I don't think it is going to have the impact that the member [for Wentworth] is concerned it will, but I am absolutely confident and would commit that a review conducted of these arrangements would look at and deal with that issue.”
Minister Jones said he believes liquidity issues within funds are largely due to “lumpy assets” such as real estate.
“The examples that are generally brought forward are commercial real estate inside a self-managed super fund or a farm. The simple fact of the matter is that these assets are earning money,” he said.
“If it's a commercial property, it's earning rent. If it's a tenanted property in the residential real estate market, it's earning rent. If it's a farm, it's earning income. That income is available to cover any liability that may be incurred as a result of these new arrangements. Other, non-fund income is also available to meet the liability.”
He continued that a feature of the arrangements put in place in the bill is that a capital loss can be brought forward.
“A loss made in one year can be offset against a gain made in a subsequent year. I repeat: it's a modest change. I don't seek to discount the genuinely felt and well-advocated positions that have been put by members of this House. We've thought through them all,” Jones added.
He concluded that a review of the bill would not commence in its first year but stated there will be a post-implementation review to be completed prior to 1 July 2027.
“That's a time after which you'll have had two cycles — two taxation years will have passed — and you will be able to look at the issues of concern,” he said.
