Are you contemplating buying your first Bitcoin, yet find yourself hesitating due to prevailing...
Unrealised Gains Tax Proposals and the Opportunity Cost of Not Holding Bitcoin
Host, DJ (Australian Bitcoin Podcast and Discovering Bitcoin Podcast) and Peter delve into pressing issues facing Bitcoin investors, particularly in light of Australia's proposed Division 296 tax on unrealized capital gains. This tax, originally set to take effect from July 1, 2025, targets superannuation balances exceeding $3 million, imposing an additional 15% tax on earnings attributable to the portion above this threshold.
Unlike traditional capital gains tax, which is triggered only upon sale, Division 296 taxes paper profits - unrealized gains - creating potential liquidity challenges for investors holding volatile assets like Bitcoin and highlights the severe implications for long-term holders.
DJ and Peter attempt to quantify the cumulative effects of the proposed tax, combined with other levies and forced asset sales to cover payments, eroding the majority of the investment's value.
For instance, if a superannuation fund's balance surges due to Bitcoin's appreciation, the tax applies to the growth in total superannuation balance (TSB), calculated as the difference between the adjusted year-end TSB and the starting balance, minus contributions plus withdrawals. Negative earnings can be carried forward, but no refunds are issued for prior taxes paid on gains that later reverse. Critics argue this creates a "wipeout" effect, especially for Bitcoin, which has seen explosive growth.
In high-growth scenarios, repeated taxation on unrealized gains could compound, forcing sales that incur further capital gains tax, potentially wiping out up to 92% of net returns over time. An article in the Australian Financial Review counters this, calling the 92% claim "rubbish" and emphasizing that earnings on the first $3 million remain untaxed, positioning the levy as a modest adjustment rather than a catastrophe. It's a decision for each investor and their financial advisor to evaluate, but to find a solution you must first be aware of the problem.Shifting focus, the episode underscores the opportunity cost of not holding Bitcoin, exacerbated by these tax proposals. With Bitcoin recently hitting new all-time highs, non-holders face stark foregone gains - opportunity cost defined as the benefits missed by choosing alternatives like fiat or traditional investments.
Inflation's "hidden cost" amplifies this: as fiat currencies depreciate, Bitcoin's scarcity and outsized annual compounded returns make it a hedge. Dunworth and DJ discuss how new ATHs expose this cost vividly; for example, someone who sold Bitcoin at USD20,000 in 2022 missed the rally to over USD100,000 by 2025, losing nearly six-figure profits per coin.
Not holding Bitcoin means not only missing appreciation but also enduring wealth erosion from inflation. In a tax environment like Division 296, holding Bitcoin outside superannuation might become preferable, avoiding unrealized gains taxation, though it forgoes super's tax advantages. The podcast warns that governments worldwide may follow Australia's lead, pressuring investors to act.
Ultimately, the episode urges Bitcoin adoption to mitigate opportunity costs while navigating tax pitfalls. Strategies include balancing super funds below $3 million or using Bitcoin loans to access value without selling. As Bitcoin's role in portfolios grows, ignoring it could mean substantial lost wealth - far outweighing tax concerns for proactive holders.
NB: This video is for information and entertainment purposes only and should not be considered investment advice.
