The looming change to capital gains tax has been framed around property yet share investors face a major reset as well.
For almost 30 years, individuals selling shares have benefited from a 50% CGT discount when they hold investments for more than 12 months.
That discount is now set to be scrapped and replaced with an older-style indexation system last used before 1999.
Under indexation, the original purchase cost is adjusted each year for inflation before calculating the taxable gain.
Plato Investment Management runs one of the market’s best-known income-focused share funds and has crunched the numbers on the new approach.
Its modelling looks at an investor on the top personal tax rate holding a global shares fund for 20 years, assuming annual returns of 7%.
Over that period, a $100 investment in a global shares index would grow to a total gain of $288.
Under the current 50% discount regime, the resulting tax bill on that gain would be about $68.
Under the proposed indexation rules, the same investor facing the same 20-year return profile would pay far more tax.
Plato calculates that the CGT bill would jump to $101 on that $288 gain once indexation replaces the discount.
That represents an increase in tax of nearly 50% for long-term investors on the highest marginal rate.
Long holding periods, which have traditionally been encouraged by the CGT discount, could therefore become materially less tax-efficient.
For investors heavily exposed to global equity funds, the policy shift looks like a direct hit to after-tax returns.
Source: The Australian
