Tax time could become a 'nightmare' for ordinary Australians if Labor's capital gains tax (CGT) changes are passed, with experts warning it could spell the end of DIY returns. The proposed reforms would replace the blanket 50 per cent CGT discount with inflation indexation, requiring taxpayers to calculate gains based on quarterly inflation figures over the holding period.
Complex Calculations Ahead
A table compiled by X user Robin Dods highlights the looming administrative burden. For example, 'Bob the pensioner' with a portfolio of 20 stocks over 15 years, each with dividend reinvestment, would need to consult the table 1,280 times to calculate inflation corrections for each purchase and sale. Tax experts warn that this complexity could push many Australians away from self-managing their investments.
More than half of Australian adults (10.2 million) own investments outside superannuation or their primary residence, according to a 2023 ASX study. Around 7 per cent of taxfilers report a net capital gain annually, including shares and property.
Expert Concerns
Tony Greco, senior tax adviser with the Institute of Public Accountants, said the current system allows calculations 'on the back of an envelope,' but the new rules are 'something completely different.' He noted that even tax professionals struggle with the legislation, which has missing details and no clear method statement for pre- and post-July 2027 assets.
Dividend reinvestment plans add further complexity. The ATO treats reinvested dividends as cash used to buy more shares, requiring separate indexation for each batch. Belinda Raso, director of Tax Invest Accounting, called it 'a logistical nightmare,' predicting more investors will turn to managed funds or ETFs.
Impact on Taxpayers
Currently, 60 per cent of taxpayers use a tax agent, and that number is expected to rise substantially. Rachel Waterhouse, ASA chief executive, said many members are concerned about complexity and the need for financial advice. Wealthier taxpayers already use accountants, but those with side trading in ASX-listed stocks may find DIY too hard.
The transition on July 1, 2027, requires all existing assets to be valued at that date, creating additional costs for illiquid assets. The indexation model also creates a 'triangle of sadness,' where capital gains and losses are calculated on different cost bases, potentially inflating tax bills.
Political Context
Labor's tax package was introduced to parliament and will be examined by the Senate Economics Legislation Committee, with a report due June 22. The government is consulting on potential carve-outs but has not finalized any exclusions. The Coalition opposes the changes, so Labor needs Greens support to pass the laws.
