“What is hard to really justify is that government wants to treat your upside as earnings even though it’s may be entirely unrealised gains,” he said.

“But if your earnings go down, like you have a stock market crash or your crypto drops through the floor, the government is glad to take your tax but it’s not going to give you anything back.

“The only way you will get it back is if you get an upside so it’s a quarantining of your loss against a future upside in your total superannuation balance (TSB).

“I don’t think that is fair. The Tax Institute, in particular, has requested a loss carry back so there is a refund and I think that is fair.

“If the government wants the upside it should certainly deal with the downside.”

Mr Butler said there was also the issue of deemed earnings and said self-managed funds should be given the choice of a deemed earnings rate excluding unrealised gains or actual taxable earnings.

“That is what the SMSF Association has put forward and I think that’s a very sound submission and sensible for the self-managed funds,” he said.

He said the proposed tax is an initiative by the government to move the system away from a realised basis.

“If we go back to 19 September 1985, when capital gains tax was introduced, it was based on the realisation principle, that is, if you realise your gain, you may have some money to pay the tax,” he said.

“But if we go to unrealised gains, and that is your super fund, super funds were at one stage sacrosanct and it was politically dangerous to impose a new tax on someone’s super.

“Now introducing a new tax on someone’s super on an unrealised gain is a very big and bold move by the Government especially when thinking about what will be next – will a new unrealised gains system be introduced in Australia?

“The Tax Institute says if the government does proceed with an unrealised taxing system, it should be contained to super, however, what will be next?”

He continued that many people are concerned that the $3 million tax will lead to double taxing.

“When I say double tax, I’m using that in a very broad manner,” he said.

One example he described was where double tax can arise is where Sarah’s super increased from $3 million to $6 million and the new tax was paid on those unrealised gains on the way up. However, when Sarah’s super fell to $1 million, she obtained a carry forward loss of $3 million that will only be able to offset against a future gain, if Sarah is lucky to ever benefit from an increase in her super.

Mr Butler was also concerned about the complexity of the new tax and the adjustments that would be needed to the TSB and to what would constitute a ‘withdrawal’ which is added back under the proposed earning formula or a contribution which is subtracted from the earnings formula.

“A withdrawal, for instance, is likely to capture pension and lump sum payments as well as excess contribution withdrawals including withdrawals to pay division 293 tax and the new 15% tax. Its likely that insurance proceeds for permanent incapacity will increase your TSB, but will that be carved out when the law is finalised?

“We don’t know the answer to that but the submissions put forward have been to seek a number of adjustments [around these].

“It’s the complexity of the system that is just getting beyond a joke and that point is being repeatedly made by a number of professional bodies.”