Vanessa, a 28-year-old high school teacher, started investing in exchange-traded funds (ETFs) at age 18, hoping to build financial security as the housing market became increasingly unaffordable. Now living in a campervan on a vacant block in Margaret River, Western Australia, she has about $120,000 invested across global and local ETFs. However, proposed federal capital gains tax (CGT) changes have forced her to reconsider her strategy.
Under the reforms, from July 1, 2027, the 50 per cent CGT discount will be replaced with cost-base indexation for assets held over 12 months. This means the purchase price will be adjusted for inflation, and tax will apply only to the 'real' gain, with a 30 per cent minimum tax on real capital gains. Vanessa worries this will hurt share investors, as property is already too expensive. 'For growth assets like ETFs, shares or crypto, the gain can sometimes be much bigger than inflation,' she said, noting indexation does not reduce taxable gain as much as the old discount.
Official analysis suggests younger investors are not the main beneficiaries of the current CGT discount. The Parliamentary Budget Office estimates the discount will cost $21.8 billion in 2025–26, with 82 per cent of the benefit going to the top 10 per cent of income earners and almost 60 per cent to the top 1 per cent. Treasury analysis shows the benefit skews toward older adults, particularly those aged 50 to 69.
Helen Hodgson, an adjunct professor of tax at Curtin University, said the reforms aim to narrow the gap between how income from work and investments are taxed. However, she noted tax reform alone won't resolve wider pressures on young Australians, such as housing costs and student debt. Matt Nolan of e61 added that the changes are more about taxing investment income like wage income than addressing intergenerational inequality.
Vanessa has accepted the government's argument but remains concerned. She is now considering shifting her focus to commercial property, which may offer better tax treatment under the new rules. 'The party had to end,' she said, acknowledging the need for reform but feeling the sting of losing a key investment incentive.
