Host: Jovan Cvetkoski is talking the budget – director and financial adviser with Knight Group. Off you go.
Jovan: It was one of the most controversial and consequential budgets in years. The big changes were to capital gains tax, negative gearing and trust distributions – and yes, in a word, the government is trying to get money back. We’ve got a lot of debt, and no government, Liberal or Labor, seems able to rein in spending.
Host: Let’s start with capital gains tax.
Jovan: From 1 July 2027, the current 50% discount for individuals, trusts and partnerships goes back to the indexation method. So we’ll effectively have two systems. If you bought an asset before 1 July next year – as at budget night – you keep the 50% discount. Anything bought after budget night goes to inflation indexation, which is what we used to have. It’s a line in the sand. It applies to shares, residential property and commercial property – and, believe it or not, to assets bought pre-1985, which were always CGT-exempt. And there’s a minimum of 30%: even under the new rules, it’s your marginal rate as long as that produces a result of at least 30%.
Host: What should people do?
Jovan: If you own an existing asset you plan to keep, get a valuation on 1 July 2027 – that becomes your cost base under the new rules. You’re better off getting your own valuation than relying on the ATO’s formula years later, because the ATO’s formula will likely produce a lower value, and you want your starting figure to be high. I think it particularly hurts startups – a tech company that starts with little capital and grows a lot won’t get much of an indexation discount.
Host: Next – negative gearing.
Jovan: From 1 July, negative gearing on residential property is limited to new builds. Existing properties held before 7:30pm Australian Eastern Standard Time on budget night are grandfathered. For established homes bought after the budget, you can still deduct losses against residential property income and capital gains, but you can’t deduct interest against your wages. Commercial property isn’t affected. There may be a wrinkle: if you live in your mortgaged home, you could move out and then negatively gear it.
Caller (Karen): I’m thinking about downsizing. Do I sell now or wait? My home is 27% owned by the government under a shared-equity scheme, and I’ve lived there decades.
Jovan: For the home you live in there’s generally no capital gains tax. If you downsize and have money left over, you can put up to $300,000 into super as a downsizer contribution – but within 90 days of receiving the money, and you must send the downsizer contribution form to your super fund. Get advice and confirm with your accountant, but from what you’ve said, there should be no CGT.
Break
Caller (Nick): We’ve got a second property we’ve owned since before 1985 – no negative gearing, we don’t claim anything. Has the pre-1985 grandfathering been removed?
Jovan: Yes – a pre-1985 investment property will now be subject to capital gains tax from 1 July 2027 under the indexation method. Get a valuation on 1 July 2027, because that’ll be your cost base going forward. In a high-inflation environment, with most of your gain from 1985 to now, it might not change a lot.
Host: And trusts?
Jovan: Family trust distributions to beneficiaries – a partner, adult children – will be taxed at a 30% minimum, and you get a credit for that 30%. But distribute to a company and you get no credit, so the ‘bucket company’ is potentially dead in a few years. There’s a lot to know – advice is definitely the way to go.
