In the 2022 election campaign, the coalition warned that Labor would introduce a ‘death tax’ if elected. The media, especially Labor’s camp followers at the ABC, screeched that it was ‘fake news’.
Fast forward to 2025.
The new super tax will hit deceased estates. In a bizarre twist, the mechanics of the tax threaten to leave those who inherit super with a double sting where unused tax credits lapse but capital gains tax obligations remain in place.
Which sounds an awful lot like a death tax to me.
Under the government’s plan, profits, based on actual and unrealised (or paper) gains will be taxed, but losses will not be compensated. Rather, the losses can only be carried forward against future liabilities.
If the investor holding the tax credits in their super fund dies, the unused tax credits are left dormant. There will be no future profits in their super fund to set the credits against. In other words, the accumulated losses become valueless … that’s the first part of the double sting.
The second part is that the new super tax – tagged as Division 296 – is a completely new tax and runs independently of other taxes inside or outside super. Consequently, if the same investor leaves behind capital gains tax bills, they will still have to be paid in full, even if it so happens that the deceased estate is left holding a swag of tax credits relating to the super tax, they will have no relevance to other tax bills.
The CEO of the Australian Shareholders Association, Rachel Waterhouse, has warned: “The treatment of unused credits remains unclear, particularly in cases where asset values fall or the investor passes away. This creates complexity and a potential mismatch between tax paid and actual financial outcomes.
“Existing precedent suggests that Division 296 tax credits may not transfer to a member’s estate, meaning tax already paid on unrealised gains could be lost upon death – while capital gains tax on those same assets may still be owed by the estate.”
Who wants to bet this is just the start? If Labor get away with this, then emboldened and with the Greens – who’ve long campaigned for death taxes – egging them on, does anyone really doubt they’ll start eyeing up your inheritance?
Especially given that superannuation accounts are rapidly outstripping traditional wills in inheritance transfers across Australia.
With the arrival of Division 296 there are now two effective wealth tax issues imposed on those inheriting super. First, the 17 per cent tax on super to be paid by adult children on the “tax free component” – which is usually the largest component in an individual’s super savings. Second, the potential value destruction of tax credits relating to Division 296 in a deceased estate […]
The arrival of Division 296 creates a new layer of inheritance issues for super. Moreover, with no plan to index the new tax, the amount of people affected will increase every year.
Especially when the new tax as it stands will almost certainly raise nowhere near the revenue Zippy Chalmers thinks it will. Because people aren’t stupid: impose a new tax and they’ll find a way around it.
Australia’s biggest auditor of self-managed super funds, ASF Audits, has raised concerns about the manipulation of property and farm valuations in preparation for avoiding Labor’s unrealised capital gains tax that would dent Treasury’s estimates of revenue […]
ASF Audits head of technical Shelley Banton, who oversees 50,000 self-managed super funds, said superannuants would be looking to avoid tax by securing valuations on properties, including farms, that helped them reduce the impact from the tax.
“As of June 2025, those who are above the $3m mark will want a valuation as high as possible, and then for the 2026 year, they will want a valuation as low as possible so that they’re actually making an unrealised loss instead of an unrealised gain, and therefore they don’t have to pay tax,” Ms Banton said.
Even more likely, Boomers who already boast about ‘Spending the Kids’ Inheritance’ will have even more incentive to spend it while they’ve got it and keep the taxman’s claws off it.
Depending on what’s possible with valuations, it might also lead some people to withdraw super, and “if we’ve looked at what’s happened to evidence in other countries when they’ve imposed this sort of tax regime, we’ve seen a lot of money not only exit the industry, but also exit the country”, Ms Banton said.
Otherwise, as George Harrison warned, you’d better get ready to declare the pennies on your eyes.
