The federal budget has wiped out Millennials as a competitive threat in the property market, putting older investors in prime position to build up their housing portfolios.
That’s the verdict from financial advisers who say Jim Chalmers’ budget is nothing more than a tax grab that affects all generations – but inserts a CGT get-out clause that will primarily benefit retirees and pre-retirees.
“This is the worst budget I’ve ever seen. It’s horrific. If you look at the finer detail of everything they’re trying to do, it is 100 per cent a tax grab. I can’t think of anyone it’s not impacting,” Aspire Retire Financial Services co-founder Olivia Maragna told The Australian.
“It’s even hitting their voters — the young people buying ETFs and crypto,” she said.
“At the same time, it puts older investors in a great position. They (Labor) have slaughtered the competition in the housing market, they’ve completely taken out that 28 to 45-year-old group, the ones trying to get into their first investment property. That group can’t afford to not negatively gear.
“Whereas older people, a lot of them don’t need to negatively gear. And they’ve got the cash to buy. They’re now saying to themselves they don’t have as much competition from younger people trying to buy rental property,” she said.
The treasurer on Tuesday announced plans to scrap the current 50 per cent CGT discount in favour of an inflation-adjusted indexation model for assets held longer than 12 months. The change will affect all asset classes, including shares and crypto, as well as property.
But it is the negative gearing changes that mean a double whammy for younger investors, as it is this group that has used the tax break in the past more than older investors.
For any investment property bought after May 12 this year, buyers will no longer be able to offset rental losses against annual income, making it more expensive to own an investment property and also reducing borrowing power.
As well as these property tax changes, the government has also cracked down on trusts, slapping a minimum 30 per cent tax on discretionary trusts. These trusts are often used by small business owners, including tradespeople, to distribute income to a spouse on a lower tax bracket.
Centaur Financial Services founder Hugh Robertson said the budget measures would kill entrepreneurial spirit in Australia and there was a big risk investors would now focus so much on tax they would forego potential wealth growth.
“With all this focus on tax, people will now be really focused on avoiding that tax. And playing defence like that is usually a pretty poor way to go about wealth creation. To build wealth you need growth assets,” he said.
Mr Roberston expects investors to now pump extra money into the CGT-free family home and super, but he questioned whether the government could keep their hands off super savings in the future, given this year’s broken promises on tax changes.
From July 1, 2027, the 50 per cent discount on CGT, in place for a quarter of a century, will be ditched in favour of the old inflation-linked calculation. But it comes with an added kick: at the minimum, investors must pay at least 30 per cent CGT.
But there is a potential CGT sweetener in the budget papers. It is not limited to older investors, though this segment of the market is likely to benefit from it more than others, since it is this cohort that holds the most assets.
“Recipients of means-tested income support payments, such as the Age Pension or Jobseeker, will be exempted from the minimum tax if they receive any payment in the financial year in which they realise the capital gain,” the budget papers said.
Ms Maragna said advisers would immediately work on how best to structure a client’s affairs to take advantage of this ‘get-out’ clause.
“I don’t think the government actually understands how all of this works. Because you can structure your affairs to get that benefit anyway. So essentially they’ll still be giving benefits to investors,” she said.