The budget speech was tonight, and all of the worst stuff that was leaked in the lead up to the budget appears to be in it. The worst is a minimum 30% tax on capital gains instead of up till now a maximum of 47%! Australia now has the most favourable tax treatment of dividends in the world and the least favourable treatment of capital gains. I'm sure Labor is thinking about that discrepancy. They were in 2019. I am exactly the type of person worst hit by this budget–a retiree probably in the 30% tax bracket.
The existing capital gains tax discount served two purposes. One is that taxing gains that are just due to inflation seems unfair (though we do that to interest payments), and the second is that companies already pay corporation tax on the profits they reinvest to generate capital gains. While franked dividends in Australia fully pass on to shareholders a credit for tax already paid, the current CGT regime partially does that. Whether or not replacing that with inflation indexation makes sense, a minimum 30% tax on capital gains seems especially unfair.
I am already thinking about how to adapt to the new regime. I probably will sell my gold ETF holdings and replace them with futures contracts due to the new minimum 30% capital gains tax. And probably put the futures inside our SMSF for good measure. Freeing up the capital will allow me to reduce debt, contribute to super as much as I can and buy some dividend yielding investment instead.
Pershing Square Holdings, 3i, Berkshire Hathaway, Masterworks, and Angellist investments are all less attractive. Should also reconsider our accounts (outside the SMSF) with Colonial First State (CFS Imputation Fund and Acadian Global Long-Short Fund) that distribute capital gains. It doesn't make sense to get rid of all investments likely to have real capital gains. Instead, the expected rate of return needs to be high enough post-tax to hold onto those investments.
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