Budget, CGT changes etc Questions x 6

Great questions from the MM community, and genuinely important ones given the significance of this week’s budget changes. We’ve touched on a number of these through the week and will delve into again during next week’s Webinar.

• Darren — will the CGT changes be watered down?
  Possibly, but we would not bank on it. Our guess is that the core policy survives. There may be some tweaks around clearer grandfathering rules, simpler valuation/apportionment for existing holdings and carve-outs for start-ups/early-stage investment, but it appears they will have the numbers to get the changes legislated – but as always, best to wait till things are actually in before making any shifts.
• Trish — could investors sell shares before July 2027?
  We doubt it. The new CGT rules only apply to gains accruing after 1 July 2027, not gains already made before then. Existing holdings sold after that date are effectively split: gains up to 1 July 2027 use the current rules, while gains after that date use the new indexation/minimum-tax framework. That reduces the incentive to sell before the deadline.
• Trish — market impact over the next 12 months?
  Modestly negative at the margin. It could reduce the appeal of high capital-growth, low-income stocks for taxable investors, which previously benefited more from the 50% CGT discount. However, markets will still be driven more by earnings, interest rates, liquidity, AI/global growth themes and company-specific fundamentals. We would expect stock-specific derating risk rather than a broad sell-off purely because of CGT.
• Angela — is negative gearing removed for established housing bought after Budget night?
  Broadly, yes, your AI summary is closer to the current Budget wording. For established residential property bought after 7:30pm AEST on 12 May 2026, losses can still be offset against residential property income and carried forward, but from 1 July 2027 they cannot be deducted against wages or other non-property income. Existing properties held before Budget night remain under current arrangements until sold. New builds can still be negatively geared.
• Angela — does this bring Australia closer to other countries?
  Yes, directionally. Australia’s system has been generous because rental losses could be offset against salary/wage income while capital gains received a 50% discount.  Direct country comparisons are imperfect, but Treasury also notes the OECD has recommended reducing the CGT discount and phasing out negative gearing.
• David — do CGT changes only apply to assets acquired after July 2027?
  No. The new rules apply to gains accruing after 1 July 2027, even for assets already owned. For existing shares, the gain up to 1 July 2027 will still receive the current 50% discount, while the post-1 July 2027 gain is calculated under the new indexation/minimum-tax method.
• David — does the 30% minimum tax apply below the tax-free threshold?
  Based on the Budget wording, the 30% minimum tax applies to real capital gains accruing after 1 July 2027, but the detailed legislation will be important here. The stated purpose is to ensure realised real capital gains are taxed at a minimum 30% rate where they would otherwise be taxed below that level. We would wait for draft legislation before making firm conclusions for very low-income investors, retirees or people with capital gains but little other income.
• David — impact on super fund returns?
  Super funds, including SMSFs, have been excluded from the new CGT/negative gearing reforms, so the changes mainly hit investments held personally, through trusts, companies or partnerships. Overall, the changes make investing through Super much more attractive. The bigger effect is probably indirect: if taxable investors place a lower value on capital gains, that could marginally affect valuations for some high-growth assets, which super funds also own. But for most members, asset allocation and market returns will matter far more than the direct CGT change.
• David — is money now better off in an income stream account than shares?
  Not automatically. Tax is only one factor. Income-stream/super structures may look relatively more attractive for some investors, especially retirees, but shares can still deliver income, franking, liquidity and long-term capital growth. The better comparison is not “income stream versus share market”, but after-tax return, risk, access to capital, age, contribution limits and estate-planning needs. This is one for personal advice, which MM does not provide.
• Charles — impact on high-growth companies like PME, XRO, TNE and HUB?
  Potentially negative at the margin. High-PE growth stocks rely more heavily on future capital gains than current income. If the after-tax value of capital gains is reduced for taxable investors, the market may place a slightly lower value on long-duration growth. This does not mean these stocks are broken; it means the hurdle rate rises. Companies that keep delivering strong earnings growth can still perform well, but valuation discipline becomes more important.
• Charles — which stocks are most exposed?
  Theoretically: high-PE, low-dividend, long-duration growth stocks. That includes parts of technology, healthcare, platform businesses and smaller growth stocks. The least exposed are likely higher-yielding companies where a larger part of shareholder return comes from dividends/franking rather than capital gains. However, fundamentals still dominate: a high-growth company that upgrades earnings will likely outperform a cheap income stock that disappoints.
• Simon — how is CGT calculated on existing shares sold after July 2027?
  It is split into two periods. Gains made up to 1 July 2027 are treated under current arrangements, including the 50% CGT discount. Gains made after 1 July 2027 are treated under the new rules using the 1 July 2027 value as the starting cost base, with indexation and the 30% minimum tax applying to the post-2027 gain. For listed shares, the 1 July 2027 value should be based on quoted prices, or alternatively an ATO apportionment formula.
• MM view overall
  We would avoid making rushed portfolio changes solely because of the proposed CGT reform. It is not yet law, details may change, and the transition rules are designed to reduce rash decisions. The bigger practical takeaway is that income, dividends, franking and valuation discipline may become more valuable, while purely capital-growth-driven investments may face a higher after-tax hurdle.