Changes to Capital Gains Tax May Shift Investment to Shares

The budget made some tax rules permanent to help small businesses with cash flow.

In short:

The budget says changes to capital gains tax could make people invest in shares instead of property.

The current 50% discount on capital gains tax will be replaced with a new system that considers inflation, with a minimum tax rate of 30%.

The government made some tax rules permanent to help small businesses, including a rule that lets them write off assets quickly.

Investors in the share market are not paid enough for the impact of inflation under current tax rules.

The government will stop the 50% discount on capital gains tax for investments held for more than 12 months.

The budget also says the changes could shift investment away from existing properties and into stocks and new properties.

The budget says the changes to tax rules will make investment decisions more efficient and based on economic reasons.

For the latest news on the budget, read our blog.

Some stock investors were worried about changes to capital gains tax before the budget.

A private investor, Liam Walsh, has $3 million in shares and is looking for capital gains.

Liam Walsh said he needs tissues to cry into because most of his income comes from capital growth.

Liam Walsh supports the changes to capital gains tax even though he will lose money.

Despite expecting to lose money, Liam Walsh supports the policy.

The budget says investors in the Australian share market have not been paid enough for the impact of inflation.

The current tax discount does not pay investors in the share market enough.

For example, inflation was 56% of the growth in ASX 200 shares held for 10 years.

Inflation was 53% of the growth in the All Ordinaries index.

Inflation was 38% of the growth in property, so the current tax discount pays too much.

An economist said the changes to capital gains tax will make people think about other ways to build wealth.

The economist said Australians' focus on property has created inequality.

The economist said the changes to capital gains tax might cost share investors, but will encourage people to invest outside of property.

From tax advantages to market-driven returns

The head of capital markets at an investment app said the changes signal a shift in how Australians build wealth.

The head of capital markets said the focus will shift from tax advantages to the quality of investments.

The government is changing the capital gains tax discount to move investors away from existing property and into shares and new property.

The changes will affect growth investors, said the head of capital markets.

The move to an indexation framework aims for a more equal environment, but creates a threshold where tax benefits diminish.

A strategist agreed that the changes to capital gains tax could make stocks more appealing than property.

The strategist said the changes will increase the appeal of income stocks over growth stocks.

Government to consult with startup sector

Some investors argued that scrapping the 50% discount could hurt startups that use employee share schemes.

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Startups use share schemes to attract talent and offer a potentially lucrative payday.

Employees would pay tax on capital gains if they sold their shares.

The budget acknowledged the unique characteristics of the tech and startup sector and will consult with them.

The Budget Explained

Topic: Federal Government

Topic: Explainer

Analysis by Annabel Crabb

Analysis by Ian Verrender

Tax changes to help business cash flow

The government introduced measures to lessen the tax burden on smaller businesses facing inflationary pressures.

The ability to instantly write off assets up to $20,000 will be made permanent for businesses with turnovers up to $10 million.

For example, a restaurant can immediately reduce its taxable profit by $20,000 for new assets.

Small businesses can claim refunds for tax losses and write off small assets immediately.

The government estimated the changes will save small businesses $32 million in compliance costs each year.

The budget contained reforms to improve cash flow for small to medium businesses.

An economist said the changes help with cash flow when businesses need it most.

Around 85,000 companies can now carry back losses to obtain a refund of taxes paid on profits in the previous two years.

The government said the permanent scheme will benefit small businesses with turnovers up to $1 billion.

It's the norm in most developed countries.

It will cost $890 million to deliver over the next five years.

The government will allow startups to claim refunds for tax losses in their first two years of operation.

The government will consult the startup sector on the impact of capital gains tax reforms.

The loss refundability measure will be capped at the amount a startup paid in Fringe Benefits Tax and withholding tax.

The government said the business tax reforms will support investment, innovation, and resilience.

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