Firstly, you can view a video of my budget analysis here: https://www.instagram.com/p/DYQyy7xAVYj/

Below is a summary of my analysis for those of you who would prefer written communication. As always, reach out if you need any further assistance.

Welcome & Opening Remarks

I opened the presentation by outlining the political context of the recent budget announcement. I noted the opportunity for the opposition to respond to the proposed changes, which are positioned as addressing intergenerational fairness but appear to make it harder for younger people to build wealth. The focus of our meeting is to dissect these changes and understand their practical impact on our clients and investment advice.

Business Updates

  • The main winners from the budget are existing property investors. They will be able to retain their negative gearing benefits for the entire duration of their property ownership, as no changes were made to this policy.
  • The losers from the budget are considered to be almost everyone else. The government has attempted to promote a $250 tax rebate for all working people, but this is effectively consumed by bracket creep.
  • Statistics show that taxes and overall government tax revenue have increased significantly over the last few years.
  • I began to discuss the significant changes to Capital Gains Tax (CGT), noting that these will be a “nightmare” for anyone who invests in shares or ETFs.

The primary update concerned the significant regulatory and market changes proposed in the federal budget. These will have a profound impact on investment strategies.

  • Rentvesting Strategy: The practice of ‘rentvesting’ (buying an investment property and renting a primary residence) is expected to become unviable. The proposed changes will limit the ability to claim negative gearing benefits and will impose higher capital gains tax, making this strategy financially prohibitive.
  • Negative Gearing: It is anticipated that claiming negative gearing on investment properties will be significantly curtailed or removed, altering the financial viability of many property investments.
  • Capital Gains Tax (CGT) Overhaul: A major change is the proposed move from the current 50% CGT discount method to an indexation method. While statistics show that for long-term share holdings (e.g., an ASX 200 fund held over 10 years), the indexation method could have resulted in less tax 70% of the time over the past 15 years, the new method is significantly more complex and less understood by the general public. The simplicity of the 50% discount method was its key advantage.
  • CGT Transition Rules: A transition period will be in place. The existing 50% deduction method can be used until 1 July 2027. On this date, investors must establish the cost base of their assets. From that point forward, all future gains will be calculated using the new indexation method. This presents a significant administrative burden, especially for property owners who will need to obtain formal valuations or utilise the government formula which is unlikely to be in their best interests.
  • Property Market Impact: For positively geared properties, we can expect increased demand from investors, which will likely drive-up prices and increase competition for all buyers in those markets.
  • Re-announced Policies: It was noted that several items in the budget were re-announcements of previously legislated policies, including general tax cuts, the introduction of payday super, and the Division 296 tax on superannuation balances over $3 million.