Labor's Tax Reforms: What They Mean for Shares and Housing
The new capital gains tax (CGT) rules in Labor's budget will apply to all CGT assets, including equities. While the reforms primarily target investment properties, they also affect other assets like shares, prompting concerns about their impact on young Australians building wealth for a house deposit through equity portfolios.
How Are Shares Affected?
Labor's changes to negative gearing are specifically aimed at residential property, leaving shares unaffected in that regard. However, the new CGT rules will apply to all CGT assets. From 1 July 2027, the 50% CGT discount will be replaced by cost-base indexation for assets held over 12 months. Shares bought on or after that date will be subject to these rules, which adjust for inflation before calculating capital gains. For shares held before 1 July 2027 and sold after, transitional rules will apply, using both methodologies.
Impact on Share Portfolios
The effect on investors depends on inflation, equity returns, and tax rates. Generally, investors with high-return shares may be worse off, while those with modest gains might pay slightly less tax. Negative gearing remains available for shares, limiting the fallout. The reforms also ensure tax on profits does not drop below 30%, closing a loophole that allowed lower tax rates during low-income periods.
Home Ownership for Young Australians
The tax changes protect existing wealth accumulators but aim to address housing inequity. House prices have risen over 400% since 1999, outpacing wage growth. While the reforms may slightly reduce the appeal of share investing, they make home ownership more attainable by reducing investor advantages over owner-occupiers. Financial adviser Andy Darroch notes that losses from share tax changes are offset by cheaper housing, benefiting young Australians seeking deposits.
