Unrealised Capital Gains Tax in Australia: What's Actually Going On
Does Australia tax unrealised capital gains? The short answer is no. Here's what Division 296 actually does, who it affects, and why most people can relax.
By Timothy Hirou GaschereauPublished 9 min read
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“Unrealised capital gains tax” went from a niche accounting term to a dinner-table argument almost overnight. If you have seen the headlines and worried the ATO is about to tax your share portfolio or investment property just for going up in value: take a breath. For ordinary investors, that is not happening.
The panic traces back to one specific thing: the proposed, and now legislated, Division 296 super tax. Here is the plain-English version of what is real, what got dropped, and who it actually touches. General information only, not tax advice, and this area moves fast, so check the current ATO position.
🎯 The essential: Australia does not tax unrealised gains for everyday investors: CGT only bites when you sell. The search spike is about Division 296, a super tax that started 1 July 2026, and only on Total Super Balances above $3 million (under 0.5% of people). The original draft would have taxed unrealised gains, but that was removed: the final law taxes realised earnings only. Nothing changes for shares or property you hold outside super.
What is an unrealised capital gain?
It is a paper profit you have not locked in. Buy shares for $10,000, watch them hit $20,000, and you have a $10,000 unrealised gain sitting on your screen. It feels great, but you have not sold, received no cash, and owe zero tax. The moment you sell, the gain becomes realised, and that is when the ATO gets interested.
This is the core of Australia's CGT system: tax is triggered by a CGT event, usually a sale. No event, no CGT. For the full mechanics see our guide to capital gains tax in Australia.
Does Australia tax unrealised capital gains?
No. Not under normal tax law. You could hold shares for 30 years, watch them triple, and pay zero CGT the whole time, because you have not sold. There is even a 50% discount when you hold more than 12 months before selling. So if someone tells you Australia is taxing paper gains on your portfolio or rental: that is not accurate for ordinary investors outside super. The nuance, and the reason everyone started Googling, is Division 296.
So why is everyone suddenly searching this?
Searches for “unrealised capital gains tax australia” jumped roughly tenfold when Division 296 hit the news. Back in 2023 the government proposed extra tax on large super balances, and the original draft measured “earnings” as the change in your total super balance over the year, which would have included unrealised gains. Your SMSF's commercial property rising on paper could have triggered a tax bill with no sale and no cash to pay it.
The backlash was fierce, and the key change stuck: the bill was revised, passed in March 2026 and commenced 1 July 2026, with unrealised gains removed from the earnings definition. That correction is exactly what a lot of older articles and social posts still get wrong.
What Division 296 is and how it works
Division 296 is an extra tax on the super earnings of people with very large balances, sitting on top of the existing 15% super earnings tax. It applies if your Total Super Balance (across all your funds) exceeds the threshold at year end.
| Feature | Division 296 (from 1 July 2026) |
|---|---|
| Applies to | Total Super Balance above $3 million |
| Extra rate | 15% (effective 30% with existing super tax) |
| Above $10 million | A further 10% on that slice (effective 40%) |
| Taxed on | Realised earnings only (not unrealised gains) |
| People affected | About 80,000 (under 0.5% of members) |
| Threshold indexed? | Yes, CPI in $150,000 steps |
The maths in three steps: work out your taxable super earnings, find the proportion of your balance above $3 million, then apply 15% to that share. Example: a $5 million balance with $50,000 of earnings is 40% above the threshold, so $20,000 is attributable, and the extra tax is $3,000. SMSF trustees also get a one-off election to reset their assets' cost base to 30 June 2026 market value for Division 296 purposes: worth urgent advice if your balance is near $3 million. Our Division 293 guide covers the other high-balance super tax people mix this up with.
The controversy that is still alive
Removing unrealised gains was a genuine win for critics, but the liquidity problem did not fully disappear. An SMSF holding a $4 million farm earns rental income (realised, so taxed) while the land appreciates (excluded). The realised earnings can be modest relative to the balance, so the fund may not have the cash to pay the bill without selling. Industry estimates put more than 3,500 farms inside SMSFs. Critics also note the threshold rises only with CPI, so if asset values outpace inflation, more people get pulled in over time. The government's line: 99.5% of Australians are unaffected.
What this means (and does not mean) for you
Unchanged: normal CGT on shares, ETFs and property held outside super. You still pay only when you sell, and the 50% discount still applies. If your rental rises in value, you owe nothing until you sell. Full stop.
Changed: if your total super balance tops $3 million, you pay the extra 15% on the earnings attributable to the amount above the threshold, from 2026-27, on realised earnings. For most people, whose super sits comfortably under $3 million, Division 296 simply does not apply. If you are close, or run an SMSF with property, talk to a registered tax agent, not a Reddit thread. It is also a good reminder to actually read your super statement.
Frequently asked questions
Does Australia have an unrealised capital gains tax?
No. Australia does not tax unrealised capital gains under normal CGT rules. CGT is only triggered when a CGT event occurs, most commonly when you sell or transfer an asset. An asset that has risen in value but has not been sold generates no CGT liability.
What is Division 296?
Division 296 is an additional super tax that started on 1 July 2026. It applies to Australians whose Total Super Balance exceeds $3 million. It adds 15% on the portion of taxable super earnings attributable to the balance above the threshold, taking the effective rate on those earnings to 30% (with the existing 15% super tax). For balances above $10 million, a further 10% applies.
Does Division 296 tax unrealised gains?
No, the final law does not. The original 2023 draft would have taxed earnings measured as the change in total super balance, which included unrealised gains. The legislation that commenced 1 July 2026 uses a realised earnings basis. Paper gains on assets inside super are not taxed under Division 296 unless those assets are sold.
Who is affected by Division 296?
People with a Total Super Balance above $3 million at the end of the income year. The government estimates around 80,000 Australians, which is less than 0.5% of all super fund members. The threshold is indexed to CPI in $150,000 increments, so it will rise over time.
What if my SMSF holds property or a farm?
You may still face practical challenges. If your fund's realised earnings (rent, dividends, interest) are modest relative to your balance, you may need to sell assets or inject funds to pay the tax. A one-off cost base reset election is available, resetting the CGT cost base of all fund assets to their 30 June 2026 market value for Division 296 purposes. Get advice from a registered tax agent or SMSF specialist.
Do normal CGT rules change for shares or property outside super?
No. The CGT rules for assets held outside superannuation are completely unchanged. You pay CGT when you sell, not while you hold, and the 50% CGT discount for assets held more than 12 months still applies. Division 296 operates entirely within the superannuation system.
Keep reading
📚 Recommended reading
The Barefoot Investor
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The Barefoot Investor
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Australia's best-selling money book ever. A simple system for accounts, budgeting, debt and a real emergency fund in one.
Making Money Made Simple
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Australia's classic, comprehensive money guide covering tax, super and investing, updated for today.
The Richest Man in Babylon
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Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
This article is general information only, not tax or financial advice. Division 296 is complex and the rules, thresholds and status can change. Check the ATO or a registered tax agent for guidance specific to your situation.
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General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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