From all appearances Division 296 looks like a surgical strike on a small group of high-net-worth Australians with superannuation balances over $3 million. However, once you strip away the Treasury talking points, and economic modelling, what remains is something far more unsettling: a tax on unrealised gains, a principle long held at the outer fringes of Australia’s tax jurisprudence.

With the measure set to take effect from July 1, 2025, Treasurer Jim Chalmer’s move rewrites the rules of engagement between the taxpayer and the state. This may be the thin end of the wedge for wealth taxation in Australia, a concept that has until now been confined to economic theory and policy debate, not legislative reality.

For tax and accounting professionals the warning bells are ringing. For those with large superannuation balances, the road ahead is fraught with uncertainty. For the broader system of Australian taxation, Division 296 represents something more serious: a breakdown of the traditional link between realisation and taxation, and the beginning of a slippery slope.

The realisation principle: Our CGT foundation

To understand just how far Division 296 strays from orthodoxy, one must return to the introduction of Capital Gains Tax (CGT) in Australia in 1985.

When the CGT regime was enacted as part of the Income Tax Assessment Act 1936, it was built upon a clear and unambiguous principle: a capital gain should only be taxed when it is realised. That is, the tax only applied when a CGT event occurred—such as a sale, disposal, or transfer—resulting in an actual crystallisation of the gain.

The rationale was as pragmatic as it was principled:

–     Taxpayers should not be taxed on paper wealth that may never materialise.

–     Assets fluctuate in value; taxing them without a realisation event introduces volatility and risk.

–     Critically, taxpayers need liquidity—cash—to meet their tax liabilities. Taxing unrealised gains undermines this bedrock      assumption.

This realisation-based approach remains central to the CGT regime today. Whether dealing with shares, property, collectables, or business assets, the tax system defers assessment until the taxpayer has consciously disposed of the asset and received a gain. It is only at that point that the taxing rights of the State are activated.

Division 296 breaks this covenant. It taxes gains before any CGT event has occurred, before any profit has been realised, and before any liquidity is available. In doing so, it abandons a principle that has underpinned Australian tax law for 40 years.

Wealth, not income

Division 296 is not a tax on income – it is in effect, a tax on wealth, and not just on wealth that has been spent —but on value that still sits within the superannuation system, locked away under preservation rules.

There’s a contradiction here that deserves scrutiny. Superannuation is, by design, a long-term savings vehicle. Members are discouraged—and in most cases legally prevented—from accessing it until retirement. Yet under Division 296, taxpayers will be expected to pay tax based on temporary fluctuations in asset values, even if those assets cannot be sold, and even if the value collapses the following year.

In this sense, Division 296 is more aggressive than capital gains tax. CGT at least waits for a realisation event. Division 296 demands payment now, on value that might never materialise.

The liquidity paradox

One of the most glaring contradictions in Division 296 is its complete disregard for liquidity.

Imagine a self-managed superannuation fund that owns a large rural property, a commercial warehouse, or an equity stake in a private business. These assets might rise in value on paper—based on market fluctuations or desktop valuations—but produce very little income. Under Division 296, the member faces a real tax bill, based on notional gains, but no real cashflow to pay it.

This creates pressure to either:

–     Sell assets,

–     Extract additional funds from the fund, or

–     Restructure ownership into less tax-sensitive vehicles.

None of these outcomes is desirable. All distort behaviour. And none aligns with the goal of encouraging long-term retirement saving. What we’re seeing here is a government trying to retrofit a wealth tax into a retirement system without changing its core structure—and the result is clumsy at best, punitive at worst.

Political expediency and policy drift

How did we get here? The government wanted to signal a commitment to budget discipline and equity, without touching middle Australia or increasing personal income tax rates. Targeting high-balance super accounts was politically saleable. Framing it as a “modest adjustment” made it palatable.

But Division 296 wasn’t introduced on principle. It was born of political expediency, not coherent tax reform. And that’s what makes it so dangerous.

The measure lacks internal logic. It treats paper gains as if they were income. It ignores liquidity. It imposes tax on events that haven’t occurred. And it assumes, wrongly, that asset prices rise in a straight line.

Worse still, it sets a precedent.

If the government can tax unrealised gains inside super today, what’s to stop it from taxing the family home’s paper appreciation tomorrow? Or investment property? Or shares held outside super?

A creeping factor

Although Division 296 currently affects only a small number of Australians—estimated to be fewer than 100,000—the $3 million threshold is not indexed. That means over time, and particularly in an inflationary environment, many more people will be caught.

This is not a tax on the ultra-rich. It is a slowly spreading levy that will, over the coming decades, affect an increasing number of ordinary Australians—especially those who have prudently saved over a lifetime and benefited from asset price growth.

In that sense, Division 296 is not just a tax policy—it’s a wealth signal. It tells Australians that frugality and long-term planning may one day be punished, not rewarded.

Fairness, or folly?

Defenders of Division 296 argue that it’s about fairness. They say concessional tax treatment of superannuation was never meant to be a vehicle for tax minimisation among the wealthy. And to some extent, that’s true.

But fairness is a slippery concept in tax policy.

Is it fair to tax someone on money they haven’t received? Is it fair to treat paper revaluations as income? Is it fair to levy tax inside a system that already has strong restrictions on access, contribution caps, and preservation rules?

There is a deep risk that in pursuing distributional fairness, we lose sight of systemic coherence. A fair tax system is one that is not only progressive, but also predictable, rational, and anchored to economic reality. Division 296 fails that test.

A precedent worth challenging

The introduction of Division 296 may well lead to future legal challenges. Whether the measure falls afoul of constitutional limitations or is subject to successful reinterpretation by the courts remains to be seen.

But practitioners, academics, and taxpayers should be alert to the long-term implications of allowing tax to be levied on unrealised gains. It opens the door to broader wealth-based taxation, undermines coherence in our income tax base, and injects a high degree of volatility and unpredictability into retirement planning.

If we accept this today, what will we accept tomorrow?

In the end, the tax you pay is equal to the tax they take

Division 296 is more than just a tax tweak. It is a test of our tax system’s philosophical integrity. It may be targeted now, but it sets a dangerous precedent. It sacrifices principle for expediency. And it redefines income in a way that may haunt future generations of taxpayers.

When Australia introduced capital gains tax in 1985, it made a deliberate and principled decision: taxation should follow a triggering event. Tax should arise when gain is real, crystallised, and accessible.

Division 296 discards that logic. In doing so, it erodes a cornerstone of Australian tax law—and invites a future in which paper value becomes taxable, and liquidity becomes irrelevant.

Australia can and should debate fairness in superannuation. But we must do so with policies that are principled, consistent, and anchored to the real-world ability to pay. On those counts, Division 296 fails.

And unless that failure is acknowledged, challenged, and ultimately reversed, we may find ourselves in a future where value is taxed before it exists, and where retirement is penalised, not protected.

*Tony Anamourlis is a tax law specialist in multinational transactions, negotiating with the Commissioner of Taxation and other regulators and is a regular contributor to Neos Kosmos.