Why your investment decisions shouldn’t start with tax

Instead, the discount will be subject to indexation and gains will have a minimum tax rate of 30%.

It is, arguably, the entire point of the reforms.

The question becomes: should it?

Don’t start with tax

“If you start with tax, you end up making short-term or distorted decisions. The purpose of investing is to grow wealth over time,” Robertson says.

“Tax is simply one of the costs along the way. The new rules are designed to reduce the benefit of timing gains into low income years and to bring a minimum 30% effective tax rate into the system.”

“Select the appropriate asset allocation, select quality ‘get rich slow’ investments, then apply the constraint of tax on it. The danger with the budget is that investors will reverse the order and make the number one priority to reduce tax.”

Charlie Viola, executive chair and adviser at Viola Private Wealth, says the foundation of planning an investment strategy is always to understand your goals, find the best structure, and then make investment decisions that generate the relevant return for your goals and situation.

“Once investments are in place though … the CGT changes which occurred in the federal budget should have no real bearing on whether a client now sells,” Viola says.

“The minor tax arbitrage that looks to have been placed for assets sold after 1 July 2027 will be minor and investment decisions should be made based on return dynamics and suitability to risk, timing, needs etc.”

“You don’t tend to get wealthy by doing nothing”

As with the move to a CGT discount in 1999 which, combined with negative gearing, drove more investors into property, invariably there will be movement out of housing investments, particularly for new investors.

“CGT will still be considerably lower than income tax. You don’t tend to get wealthy by doing nothing, so no, people still need to get out and invest and seek the best return for their situation,” he says.

“The federal government has shaken up how we think about it a bit. But once you agree on the best entity for your circumstances, it's time to get on with building out the portfolio.”

He adds that not seeking to understand the impact of the tax changes would be “imprudent”, it doesn’t change the way he thinks about portfolio construction.

“Diversification matters, time in the market vs timing the market, asset quality matters. What is changing is that I think with all the political red tape and bureaucracy Australia is becoming less and less a desirable place to invest,” he explains.

“This means allocating a lot of money overseas instead of into the Australian share market, and we fear the government will go after franking credits at some point in the future.”

You need to get the structure right, Viola says, but “actual value and returns come from quality portfolio construction”.

Key takeaways

• Tax should never be the starting point for investment decisions.
• Sticking to the fundamentals remains critical regardless of tax changes.
• Focus on quality portfolio construction.
• CGT changes shouldn't trigger selling.
• Continue investing to build wealth.