The 2026-27 Federal Budget contains the most significant changes to how investment gains are taxed in over two decades. If you own shares, or plan to, this matters.
To recap: from 1 July 2027, the 50% capital gains tax discount that has applied since 1999 will be replaced with cost base indexation and a 30% minimum tax on net capital gains. Previously, if you sold shares held for more than 12 months, only half the profit was taxed. Under the new rules, your purchase price is adjusted for inflation instead, and at least 30% tax applies to whatever gain remains. These are announcements, not yet law, legislation will still need to pass Parliament.
So what does it mean for how you invest? You know the line they used in budget reform, intergenerational equity? Since I sit in the age bracket that is supposedly being helped, I'm one of the growth investors. That's not just my personal opinion, your superannuation agrees, super is adjusted by life cycle, meaning if you're under 55 and it is set up correctly, you're likely to be invested in the aggressive or growth option as well. So the change hits growth investors harder, the people we're helping. For long term growth assets that rise well above inflation, such as shares in high growth companies, the new system may produce a higher taxable gain than the old 50% discount would have. The old system was generous precisely because it ignored inflation and simply halved the profit. The new system only shelters the inflation component, everything above that is fair game, and at a minimum 30% rate.
This shifts the maths in favour of income-focused investing, which is generally where retirees and those older than 55 are likely to find their superannuation invested. The group this budget said it is adjusting to make it fairer.
Does this mean all is lost? No, the CGT change could boost the appeal of high dividend stocks over growth stocks. When you receive dividends, there is no CGT, you pay income tax, same as always. Australian dividends also frequently carry franking credits, which offset some of that tax. None of that changes under the new rules.
However, do not abandon growth investing simply because of a tax change. Some economists argue the changes could actually be more generous to share market investors than the previous 50% discount, depending on actual investment performance, particularly where inflation is high relative to returns. Your marginal tax rate, investment timeframe, and whether you hold inside superannuation all matter significantly. Superannuation funds keep their existing one third CGT discount and are not affected by these changes.
The bottom line: the budget has tilted the tax scales slightly toward income strategies, but it has not rewritten the fundamentals of investing. Maybe now, splitting your strategies might be the better option. Talk to your accountant about where you sit specifically, and which option works best based on your tax bracket.
Financial Disclaimer. This content is general in nature and has been prepared without taking into account your personal objectives, financial situation, or needs. It does not constitute financial product advice under the Corporations Act 2001 (Cth). Before acting on any information contained in this post, you should consider whether it is appropriate for your circumstances and, if necessary, seek independent financial advice. References to specific companies, markets, prediction tools, or investment strategies are for informational and educational purposes only and do not constitute a recommendation to buy, hold, or sell any financial product. Past events and probabilistic frameworks discussed are not reliable indicators of future performance.