Experts predict significant shifts in investment strategies following the Albanese government's tax reforms announced in the May budget. The changes, which include replacing the 50 per cent capital gains tax (CGT) discount from July next year and limiting negative gearing on properties purchased after May 12 to new builds, are expected to trigger a 'structural reallocation' of capital, according to Jeff Coulton, associate professor in accounting at the University of New South Wales' Business School.
Coulton believes property investment will likely shift towards newly built homes, while share market investors may favour established Australian companies that pay dividends. He notes that the budget measures have not yet been legislated and are subject to negotiation, but if enacted, they would dramatically change the relative attractiveness of certain investments.
The CGT changes make selling stock less attractive, impacting riskier investments like start-ups that typically rely on capital returns. Instead, investors may shift to shares in major banks and mature mining and industrial companies, which are more likely to pay dividends. Companies that pay tax in Australia also become more attractive due to franking credits, which reduce tax on dividends.
Economist Saul Eslake says the new CGT system could be more generous to share market investors than the previous 50 per cent discount, depending on investment performance. He notes that the old discount was most advantageous when asset values rose at more than double the inflation rate, which was the case for houses but not for units or shares.
When it comes to property, principal places of residence remain CGT-free, making them a 'huge winner' of the budget, according to Hudson Financial Planning managing director Juanita Wrenn. Many clients are now looking to put more money into their homes or considering moving out of their principal residence to negatively gear it while buying another property.
