How Australian investors are adapting to the changing tax environment

The instinctive reaction is to focus on the impact this will have on gains in growth stocks. The more intriguing question lies in what has been left untouched, and why that shifts where Australian investors might now look for returns.

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What changes?

• From 1 July 2027, individuals, trusts and partnerships lose the flat 50% discount on assets held more than twelve months. In its place, the cost base is indexed to CPI so only the real gain above inflation is taxed, with a minimum 30% rate applying to that gain.
• The change comes with some time to prepare for it. Gains accrued before 1 July 2027 keep the existing 50% discount, and only the portion accruing after that date is indexed. Notably, the dividend imputation system and franking credits are untouched, and negative gearing on shares is unchanged.

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Who is affected, and how?

• For a 47% taxpayer, the effective rate on a long-held gain moves from roughly 23.5% under the discount toward the full marginal rate, subject to indexation.
• Trusts and partnerships lose the discount on the same basis, and discretionary trusts face a separate 30% minimum tax on income from 1 July 2028, legislated in a later tranche.
• Two carve-outs exist, and they are already having a marked effect on investment structuring. Superannuation funds are not affected, with their concessional CGT treatment unchanged, which is why some advisers expect more capital sheltered inside super. Small business concessions are retained, with the 50% active asset reduction turnover threshold lifted from $2 million to $10 million.

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Why the hunt for yield may intensify

The logic is obvious: the new regime taxes the capital account more heavily while leaving the income account unchanged. Franking credits and the imputation system that makes fully franked dividends so valuable come away unscathed. So the after-tax gap between a dollar of capital growth and a dollar of franked income has just narrowed in income’s favour, for the first time in a generation.

That matters more than it might first appear. A fully franked 5% yield already grosses up to roughly 7.1% for an investor paying the top rate of tax, and that grossed-up figure is now being compared against capital gains that will be taxed at a minimum 30% rather than the old ~23.5%. It is reasonable to expect income-oriented sectors—financials, resources, utilities, REITs and infrastructure, to attract fresh attention as investors reweight toward returns the budget left intact.

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Shifting global appetites

There is a wrinkle worth flagging. The imputation benefit that makes the pivot to income so appealing has only ever been relevant to Australian franked dividends — it does not apply to foreign investments. Individual global equities, which have long out-grown the local market, do not pass on franked income, so they never competed with local high-yield equity anyway. But they now constitute an even more intense focus for those looking to build pure growth portfolios.

The Australian market’s yield-heavy, resources-heavy make-up, which has long been a drag on growth relative to the US, becomes comparatively more attractive when growth is taxed harder and franked income is not. Expect more capital sheltered inside super, where concessional treatment is unchanged, and a renewed focus on grossed-up yield as the metric that actually captures after-tax return. Structure, as much as stock selection, is back in the conversation.

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Conclusion

None of this changes before 1 July 2027, and investors should consider the politics of this policy before rearranging a portfolio around a tax rule that has not yet taken effect. But budgets shift behaviour long before they come into effect, and this one has redrawn the relative appeal of income versus growth in a way Australia has not seen for a generation. When the discount that rewarded holding for capital appreciation is pared back while the imputation system that rewards franked income is left fully intact, it is only rational for investors to look harder at yield, and at where that yield is most tax-effectively earned.

The likely story of the next few years is not a dramatic one. It is a steady re-weighting toward franked domestic income, more capital finding its way into super, and grossed-up yield reasserting itself as the number that matters. Growth investing is not going anywhere, but for the first time in a long time, the tax code is nudging in income’s direction, and that is a nudge worth understanding well ahead of the 2027 start date.

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Analysis by Alfred Tang, Head of Trading at Webull Australia

Data sourced from Budget.gov.au & ATO.