Tax Time Bomb: Millions of Aussie Shareholders Face 60% Tax Rate Nightmare as Budget Changes Spark Fears of ‘Death of Direct Share Ownership’
- Millions of Australians with shares could see their tax rate skyrocket to 60% due to a quirk in the pre-1999 inflation indexation method proposed in the federal budget.
- A former Treasury official warns that the change effectively “kills direct share ownership in Australia” and favours ETF investing over individual shares.
- The new tax system could have a devastating impact on Australian investors, with some facing tax rates of up to 70% on their share gains.
- Experts are sounding the alarm, warning that the changes will lead to a brain drain of investment and stifle economic growth.
The proposed changes to capital gains tax in the federal budget have sparked widespread concern among investors and experts, who warn that the new system could lead to a tax rate of up to 60% for millions of Australians with shares.
The change, which is set to come into effect on July 1, 2027, will replace the 50% discount with a pre-1999 inflation-adjusted indexation method.
But critics argue that this will have a devastating impact on investors, particularly those with diversified portfolios.
Geoff Francis, a former Treasury official, has sounded the alarm, warning that the change will “kill direct share ownership in Australia”.
He argues that the new system will favour ETF investing over individual shares, and that the tax rate on capital gains could average around 50% higher than taxpayers’ marginal rates.
For a taxpayer on a 39% tax rate, the real effective tax rate on capital gains from shares might average around 60%.
The Treasury modelling used to justify the change assumes that investors buy a single stock that matches ASX index performance and outperforms inflation over the period.
But Mr Francis notes that in the real world, investors typically hold a portfolio of shares, with a distribution of capital gains, some higher than inflation, some lower than inflation, and some negative returns.
This means that the tax rate on capital gains in diversified share portfolios could be much higher than taxpayers’ marginal rates.
Chris Brycki, founder of investment platform Stockspot, agrees, saying that the proposed changes “heavily favour ETF investing over direct shares”.
He notes that with individual shares, investors can end up paying tax on the big winners while receiving little recognition for inflation-adjusted underperformance elsewhere in the portfolio.
In contrast, index ETFs effectively net winners and losers internally, making the tax outcome far more efficient under the proposed new system.
Analysis: What This Means for Australia
The proposed changes to capital gains tax have significant implications for Australia’s economic growth and investment landscape. The new system could lead to a brain drain of investment, as investors seek more tax-friendly environments.
This could have a devastating impact on the Australian economy, stifling growth and innovation.
Furthermore, the changes could also lead to a decrease in the number of Australians investing in shares, which could have long-term consequences for the country’s economic security.
Security analysts say that the changes will make it more difficult for Australians to invest in shares, particularly for those on lower incomes. This could lead to a decrease in the number of people investing in the share market, which could have a negative impact on the economy.
Law enforcement insiders warn that the changes could also lead to an increase in tax evasion and avoidance, as investors seek to minimize their tax liabilities.
Industry observers believe that the changes will have a disproportionate impact on younger Australians, who are more likely to be investing in shares.
This could lead to a decrease in the number of young people investing in the share market, which could have long-term consequences for the country’s economic security.
The changes could also lead to a decrease in the number of Australians investing in Australian companies, which could have a negative impact on the country’s economic growth.
As the debate over the proposed changes to capital gains tax continues, one thing is clear: the new system has the potential to have a devastating impact on Australian investors and the economy as a whole.
With the changes set to come into effect on July 1, 2027, it remains to be seen whether the government will heed the warnings of experts and make changes to the new system.
capital gains tax investment economy Australian Securities and Investments Commission Australian Bureau of Statistics
