Latest / Money Grows on Trees / #336 - How The Budget Impacts Every Asset Class (Long-term view)

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#336 - How The Budget Impacts Every Asset Class (Long-term view) · Money Grows on Trees

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  The 2026 Australian federal budget just fundamentally changed how you build wealth in
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  Australia. So most people think the budget is about a cost of living. Handout minor tax tweaks.
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  But the reality is the government just scrapped the 50% CGT discount on almost every asset
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  outside of super. So the rules of investing just changed overnight. I'm Lloyd J Rose, investor
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  entrepreneur and I've helped thousands of everyday Aussies, Americans, New Zealanders,
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  Canadians get out of debt and build real wealth. In this video, I'm going to break down exactly how
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  this budget impacts every single asset class in Australia so you don't get blindsided. So let's go
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  to the first part of this, the budget at a glance. Let's let's get a big summary here of what's
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  happening. Okay. So firstly the treasurer Jim Chalmers hands down this budget, the fifth budget
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  for labor on the 12th of May, 2026. Okay. It's the most ambitious. I don't know if it's tax reform. I
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  think it's been dressed up as tax reform. But it's really they're trying to repair the
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  budget, but they're trying to do it in a way that doesn't require them to stop spending money. So
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  they're actually because the government spending is out of control. They're moving to the public to
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  help them control it by simply increasing the tax grab. Okay. Because the reality is, if they wanted
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  to repair the budget, they just stop spending as much money. Yeah, but that's not what they want to
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  do. They want us to pay for their inability to manage their budget. But here's the bottom line,
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  right. There's basically an underlying cash output of about $28 billion. Um, and so they
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  want to improve that by about 8 billion. Okay. And so what happened? What has driven the inflation?
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  A lot of the inflation in Australia, as we've talked about lots on the podcast, has been this
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  the amount of money that was spent, you know, in the last, you know, 2 or 3, 4 or 5 years. Um, and so
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  they want to be able to bring that in. Right. Pare it back. But they're not doing that. So they're
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  going to go after tax. You know, come after our money. So here's the first thing that they did.
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  Okay one they scrapped the capital gains 50% discount. So prior to this,
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  if you didn't know, um, if you kept an asset or held it for more than 12 months, you would qualify
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  for what was called the capital gains tax discount, which is where they would cut the
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  capital gain by 50%. And then you'd be taxed on that amount, right, for individuals. And that
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  includes trusts and partnerships as well, because with the trust it's a pass through entity. So it
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  actually comes into the trust. Trust owns the asset. But the distribution of the gains is to an
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  individual similar to the income as well. Um, so it's now been replaced with what's called the
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  indexation, um, with a minimum tax rate of 30%. So minimum 30% straight away. Okay.
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  Uh, so that's automatically a worse a worse place to be because if you had a, an average tax rate,
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  even if you had the highest bracket of, say, 47%, you would with the CGT discount, you'd pay less
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  than 30%. So straight away it's bad, it's worse, it's worse. But the indexation simply means, and
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  I'll put this very plainly for you to understand. So if you hold an asset for, say, more than 12
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  months, as an example, you would only pay tax a minimum of 30%, but you would pay tax
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  on the gain, the percentage gain. So let's say, for example, you hold it for more than 12 months and
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  you had a 10% capital gain, but inflation was 3%. You'd be taxed on 7% of that game. So for example,
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  if you had a million bucks grew by $100,000, you would basically be taxed on 100,000 -3%, which is
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  30. So you'd be taxed on 70,000 and you'd be taxed on the 70,000 at a minimum of 30%, but
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  commensurate to your actual average tax rate from your personal taxes that you're paying. Okay. Just
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  so you know, so basically between if you're on the if you're paying tax rate of above 30%, then
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  you're going to be taxed more than 30%. Um, on the on the gain minus the inflation rate.
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  Right. And so I think to to give you a bit of an idea of, I will come to the impact of that in a
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  second, But that's the first thing they changed. The next thing they changed, if you didn't know,
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  was negative gearing, um, and they changed it on what they did. Actually, I and I did a Instagram
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  love on this to I believe this is a good policy. And you know how much I hate labor. So and I don't
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  hate labor I just hate the policy. I couldn't if labor had good policies, I'd vote for him. And if
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  Liberal had, I'd vote for him. Whoever has the most common sense policies for pro-growth, innovative,
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  effective, good, quality life Australia, I'd vote for them, but they don't. So I'm not going to. But I
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  agree with this policy isn't one. I agree with negative gearing, which is basically where you're
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  getting a personal tax deduction for the losses associated with your property. So for example, it's
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  negatively geared effectively when the income from the property from a property investment
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  doesn't meet the interest repayments of the property. So for example, if you're getting 5%
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  rental yield, your interest rate on that deal is 6.5%. You're losing money now in the under the old
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  reform, both are second hand property so used and a brand new property could actually take those
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  deductions and you could deduct it from your personal assessable income. So there was a bit of
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  an incentive to go balls to the walls a bit and have, you know, your property not quite
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  earning enough to cover its cover itself and wash its own face with the income? There was a bit of
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  incentive to do that, because you could get a tax deduction, and if you're on a highest marginal
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  rate, you could get a 47% deduction off your personal income. So a lot of these guys who are on
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  big mining incomes, they were buying multiple properties because they could claim this negative
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  gearing benefit. One of the few ways you can actually legitimately reduce your personal income
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  tax. Now what they changed in the budget was it's only for new builds. And by the way, that's a good
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  idea because the whole reason negative gearing came into place was for the private sector to
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  help the public sector housing. So they needed to incentivize mums and all of us to want to buy new
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  properties to supply the housing market. So there should be a tax incentive for doing that. So I
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  think negative gearing on brand new properties makes a lot of sense. It makes the most sense and
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  people are jumping up and down saying it's going to change. How? Sure, probably. But they've also
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  grandfathered a lot of these. Which means if you already own it, you've already experienced gains
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  and you've already got it going on, then unlikely it'll affect you, but it's just moving forward. But
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  I do think that you want to incentivize brand new housing supply to alleviate the housing supply
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  glut or constraint. I should say that we're in. Okay. So that's from July 1st onwards okay. And a
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  lot of these things that they're implementing, they don't come into play straight away okay.
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  They've got to be one pass through it first, which is the first thing to do. And then if they do get
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  passed then there's this kind of period where it's comes into effect. Okay. So I
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  think that's actually a pretty good policy. But you also you're starting to see now because of
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  that particular policy, you're starting to see a bit of a fallout in the real estate market, which
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  is super interesting. Okay. What else did they do? So they've got I mean, I think everyone knows
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  about the superannuation over 3 million. They're going to start to to tax unrealized capital gains
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  on on super balances over 3 million. This is a big one the discretionary trust one they hit. So with
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  a discretionary trust. What you can do is you can actually split income to lower income
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  beneficiaries. So for example if you've got a spouse and they're on lower income or you know
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  than you are, you can actually take the money in and you can split it between the beneficiaries. So
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  you have a discretionary trust. Typically there's a corporate trustee. The money comes in and it's
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  split into the beneficiaries. And you can take advantage of the marginal rates of each
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  beneficiary. And you can also have companies as beneficiaries which are called bucket companies.
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  And you can cut taxes at about 30%. But the money's got to be distributed in the trust, which
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  means it's got to stay with the beneficiaries. So it's a it's a legitimate it has been for a long
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  time a legitimate way to manage personal income tax for generally for business owners, because if
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  you're a PAYG earner, you don't have access to those things. So they're actually they've decided
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  to make trusts pay a minimum 30% and even bucket companies to be actually taxed again. So there's
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  double taxation between discretionary trusts and bucket companies. I know this is getting a little
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  bit technical, but they're going after these structures that enable some level of
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  tax minimization. That's what they're doing. Do I think it's best? Well it's very painful. I think
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  accountants would do pretty well from it. But it's very a painful process to to do structure all
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  that like it's for the for the tax grab. I think they would have done better. Like with all these
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  like instead of going after the CGT, they, they could have because what they did with the CGT by
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  the way too is they applied it to shares. What. So they come out with this budget reform saying, oh,
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  we want to, you know, make, make, make it easier for younger people to buy properties and then bang,
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  hit them with the one thing that they can do, which is shares. So again, they've dressed it up as
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  tax reform. But the reality is it's a tax grab because they can't control their spending. So they
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  should have just put it to property. They should have put they should have applied negative into
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  the second hand like they have. That makes sense. And then they should have just applied the CGT
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  discounts to property investment. That would have really brought back the demand for property
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  investing, and it would have propped up the demand for other alternative assets we talked about on
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  this show would have propped up the demand for businesses, which, by the way, have probably been
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  hit the hardest in some respects. So I want to clear up what they've changed in this, the CGT
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  discount. Scrapping of that is probably the most. It's been the most. It's caused the most
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  backlash, I should say, um, for business owners, because if you have if you start a
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  business and you build a business and you sell it, you're now, you know, you can see on social media
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  that everyone's got a meme of Albanese, like my new business partner, because, you know, you've got
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  to give away the government 47%. I even did a post on my Facebook and an X this week with something
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  like Australia capital gains tax 47%, China 20%, New Zealand zero, Singapore zero. And the
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  backlash has been gnarly. It's so funny. People get so riled up, but it is 40%. If you're paying the
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  highest marginal rate of tax in your income. And it is if you don't have a capital gains discount,
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  and it is if you have no inflation. So by all accounts it can be definitely 47%. And it is much
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  higher than China and it is much higher. It's obviously way higher than Singapore and New
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  Zealand that are effectively zero. So the reason why that has caused the most backlash is because
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  it's dis incentivizing business ownership and innovation and entrepreneurship, because all of a
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  sudden you've got to pay the government half of your gains from zero. When you sell your when you
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  sell your business. However, there are some things to consider. This would be for larger businesses.
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  So any business is turning over over 2 million. And any businesses with more than $6 million in
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  net assets would be considered. Bigger businesses for small businesses doesn't affect them so much.
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  But also, if you do have a bigger business and you actually own that business for more than 15 years,
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  there are some concessions. And if you own it for more than 15 years and are over 55, there are also
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  some serious concessions. So if you do look at the fine print, if you own a business for quite some
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  time over 15 years, there are going to be some capital gains tax alleviation for you. It's not as
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  drastic as what they're saying. However, for those people who are in business who can build these,
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  build and scale these, you know, these tech businesses, it's a real challenge for them. So they
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  are carving out tech so that that's actually not even impacting a lot of those businesses, because
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  you could class almost most. Most businesses these days, tech businesses. So do I think it's going to
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  have a huge impact. Not as bad as what people are saying on social media, particularly if you're not
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  going to sell your business. Like we have multiple businesses, we have no intention of selling them.
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  But you could argue that almost all businesses are going to be tech related in some respects in
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  the future. But if you own a business for more than 15 years, it'll probably be a good idea to do
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  that. I mean, it takes that long to build a good quality business anyway. So I think that a lot of
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  people are going to be not as impacted as heavily as what they're saying, but they don't like elbow,
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  so they just hammer anywhere, everywhere they can. So I don't think the CGT on businesses is too bad.
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  I do think it sucks on shares because shares is something that everyone has available to them. For
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  younger people, it is a way for them to improve their their growth and and their wealth building.
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  However, I will caveat that too, and I'll say that if you're building a share portfolio, the
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  best time to sell the position is never. So if if you're indexing right, which if you don't
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  understand buying individual companies and doing the research, etc., you should be following some
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  sort of indexing strategy, in which case you probably would never sell. So for example, you have
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  your superannuation building over time, which is kind of like an index fund, but it's got fees and
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  it's not quite as effective, but it can be effective. That's growing it, you know, that's
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  growing. If you're a POG and you're paying yourself a wage, you've got a superannuation fund.
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  But on the other side, you've got a taxable investment account where you're putting in after
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  tax dollars and building your own portfolio, like what we do. Then if you're in an index strategy
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  and you're buying one or 2 or 3 index funds. Then the holding period is forever. So you shouldn't
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  want to sell any of those positions really. Ever. Because as soon as you do, you're going to trigger
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  a capital gain event, but also you're going to then pay the tax irrespective whether it was a
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  50% discount or not, you still would have paid some tax and you're going to interrupt the
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  compounding process and you're going to lose the the compound effect of having that portfolio. So I
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  would say that will it impact those people only if they sell and should they sell. Probably not.
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  And so I do think it's going to probably the folks who it's going to hit the most probably
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  would be those who are speculating with high leverage in property investments. So perhaps so
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  rent investors, those who are actually renting their house and buying property investments and
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  really gearing up on them. One if you're young and you're about to do that for the first time, one,
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  you're not going to have any negative gearing benefit, and two, you're going to have no real
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  concessions on your CGT for those big gains. So I do think it's going to slow down
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  speculation in the real estate market just quickly. If you're ready to take control of your
• 13:53
  finances but feel stuck on where to start, I have a solution. My book, Money Biased Happiness
• 13:59
  simplifies Investing and Wealth Building with practical steps to help you achieve financial
• 14:04
  peace. Get your copy via the link in the show notes and let's get your money working for you.
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  Now back to the episode and you can already see there's a company. In fact, people have been
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  unboxing me on my Instagram saying, Lloyd, I'm a former client of this company Dash Dot, which is
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  actually a buyer's agency, one of the bigger buyers agencies in Australia. I think they had 120
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  staff and they just went into liquidation. They went into liquidation. There's a few things that
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  changed in their business at the same time. And they didn't, you know, plan for those things
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  obviously, which can happen in business. And they went into liquidation. Now, what's interesting
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  about that is sadly, people are saying, you know, how do I get my money back? And when a company
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  goes into liquidation, if you're an unsecured creditor, there's almost no chance you're going to
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  get your money back. So you have to be do your research well enough to go. Who am I paying here
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  to get this service? But there are buyers agents. So they would, you know, effectively help people to
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  identify properties that were in their their, you know, range within the specific metrics they
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  wanted and yield and area, etc.. And they were, you know, being paid to rent SEG, which is
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  fine. And they went broke because the demand probably for that type of service is going to
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  fall because straight away you're like, well, if it's grandfathered, I already own it, that's fine.
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  But if it's if it's not grandfathered. So going forward from when the if the if the policy is
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  implemented through Parliament then 1:00 forward, very few people are going to
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  be seeking property investments that are second hand. They're just so the demand is going to fall
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  out of that marketplace. So it wouldn't surprise me to see any second hand buyers, agents, you know,
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  flip that and pivot their business and move into off the planned sales, which kind of defeats the
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  purpose of what their positioning was, which was, hey, what if we could find a property that was
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  pulling in 4 or 5 6% yield to cover the repayments, and then that just pays itself off.
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  That's the that's the positioning. It's just almost impossible to find that in brand new,
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  because Brand New House is a bit like a brand new car. The developer is selling it for a lot more
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  than really what it's worth. They're selling a lifestyle products brand new. You know, it's like a
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  brand new car. So there's a bit of depreciation that comes out of the fixtures and fittings and
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  the construction straight away, and you don't get the same yields. In fact you probably get 3.5 to
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  4.5% yields. So it's not going to wash it's own face. So the whole business proposition for them
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  is going to fall. So I do think that the biggest area that's going to be impacted by these budget
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  changes is going to be second hand property investment and speculation. So it is going to
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  affect those people. So it may produce more personal homes for people in the second hand
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  market, which by the way, is capital gains tax free. If you have a PPR it's going to be capital gains
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  tax free. So I do think you're going to find more people buying homes to live in. And you will find
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  more speculation in I'm going to buy a house, do it up and sell it. So you're probably gonna find a
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  lot more speculation in that that part of the market, which, you know, if you want to take that
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  business model on, so be it. You know, it's a very uncomfortable place to live for, you know, XYZ time
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  while you're actually doing that. But this is what's going to happen. You've got to look to
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  where the incentives are going to go. So you've got to look at look at these budget measures and
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  it's like, okay, straight away you're like, okay, are you going to build a big business and exit it
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  under 15 years? Probably not. Boom. So that's going to stifle innovation and capital coming to
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  Australia. Are you going to uh, impact small businesses? Nah, not as much. Uh, I wouldn't think.
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  And are you going to impact property investors in the second hand market? Absolutely. Are going to
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  impact them in the brand new market? Probably not. And are you going to impact folks who own shares
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  and crypto and these types of things you will, particularly in crypto, are more so than shares.
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  What's great about shares is you get paid a dividend. So there's some level of cash flow and
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  income that comes from those. Right. And you can buy some index funds in Australia that pain like
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  you know between 5 and 6% yield. That's almost tax free because of the imputation credits, the
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  franking credits that come from the dividends. I mean, that's a very fun asset to hold because
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  you're literally getting paid almost tax free income to hold this thing and watch your money
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  grow. Now, the money doesn't grow as much as what, say, a higher growth index fund will do. But
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  there's some good there's some benefits, huge benefits there. You get paid to hold. Whereas with
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  cryptocurrency, for example, you don't get paid anything to hold. And so you do have to sell it to
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  realize any cash flow. So if you're speculating in crypto, which is what a lot of people do, you're
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  going to pay maximum capital gain, you know. And if there's no inflation you're going to pay all that
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  as gains. You're going to if you're on the highest margin rate, you're going to pay 47%. So it's going
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  to stop a lot of speculation in crypto. Well I think it might. I mean, although if you're trading
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  it under 12 months it wouldn't have made any difference to you pay anyway. But I think we're
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  going to see less speculation in those assets that don't produce income. And we're probably
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  going to see folks hold on to their share portfolios a lot longer. We're going to see more
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  people look for a PPR than rent vest. And so you're going to see probably less speculation in
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  the property investment secondhand market. And we're probably going to see if we see an uptick
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  in in brand new houses because people are getting a negative gearing benefit and you know, it, hold
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  it within some sort of structure that enables low capital gains tax, then you're probably going to
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  see a lot more supply coming online, which is not a bad thing. Gold can be classed as the same as
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  crypto. If you're looking at gold, it's the same thing. It doesn't produce any income. If you're
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  holding it for more than 12 months, it now makes no difference. You're still going to pay capital
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  gain rate minus the inflation rate. You get taxed on that at your, you know, effectively average tax
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  rate above 30%. So you're going to be hit harder. All right. So if we look at if we can summarize
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  everything it's this one principal place of residence. No difference because it's capital
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  gains tax free property investments that are second hand bad. Not going to be so super
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  effective. Brand new properties. The benefit of having of having negative gearing will be there,
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  but you're still going to have to pay CGT on the highest marginal rate minus inflation. So that's
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  going to be impacted. You've got shares that will be impacted if you sell. Similarly, if you sell
• 19:52
  property, you're gonna be impacted. So it's only if you sell, right. Crypto and gold and all of these
• 19:56
  assets that are producing income, you're going to have to sell to realize some cash flow. So I think
• 19:59
  they're going to be hit the hardest. Alternative assets art cards, Pokemon flipping. You know,
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  anything that produces no income, that's just all capital growth. They're going to be impacted the
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  most. So I would say that there's going to be a reallocation of where assets are fed to. You're
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  probably going to see a lot of people sell down those alternative assets and put them into things
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  that do produce income. And again, I think it's so difficult to go past how simple it would be to
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  just simply hold, even in a company, some sort of index fund that paid an income with franking
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  credits in Australia, where you'd in a company structure, you'd almost pay no income tax and you
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  just hold it forever. I mean, that's a pretty that seems very, very, very sensible. I would say that,
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  you know, holding your peers very sensible, provided you can not become house poor with
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  what's happening in interest rates. And I think a lot of those people in the 5% deposit scheme are
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  starting to get hurt by that and get negative equity, which sucks for them. But, you know, if
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  they've been listening to the show would have got a very good hint not to do that. And I think the
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  underlying lesson is this if you're going to buy an asset, buy quality bite with the intention to
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  hold it for 30 and 40 years, and if you do that correctly, you're not going to need to sell it,
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  which means you won't be impacted by the CGT changes. So there are clever ways of navigating
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  this. So is it as bad as what you think? Not really. It's not. It's nice to poke. It's nice to poke
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  Alban easy in the chest. And it's fun. You know, it's fun to see him squirm, but it's probably
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  not going to affect most of you. I would say the thing that would affect most people in this
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  country are going to be how the government can navigate immigration. It's going to be how the
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  government can navigate their own spending to bring inflation back down. They're the two biggest
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  things, and it's going to be how you personally navigate your home. You know your household income
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  and your own budget and your own skill set, and your own investment and your own discipline.
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  That's that's that's going to make a greater impact to you than any of these budget
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  constraints and policies that may be put in place through Parliament very soon. So I hope that makes
• 21:57
  sense. Which one of those impacts you the most? Which one are you confused about the most? Which
• 22:02
  one are you pissed off about the most, or what is your particular comment or query about this? I'd
• 22:07
  love to know in the comments. Drop them below! What is the one thing that this is going to change for
• 22:11
  you when these budget measures get pushed through? If they do, and what would you prefer to see
• 22:16
  happen? Pop a comment or question below and I'll see you in the next episode. Thanks for listening.
• 22:21
  To Money Grows on Trees. If you enjoyed the episode, leave a five star review on Apple
• 22:25
  Podcasts and Spotify, and subscribe to us on YouTube so you never miss an episode. And if
• 22:30
  you're serious about building wealth, make sure to check out the links in the show notes and follow
• 22:34
  me on all social media platforms at Lloyd James Ross for more. See you in the next episode.