CGT changes could see investment shift to shares, budget suggests

Several tax measures to help small business with cash flow have been made permanent in the budget. (ABC News: John Gunn) The federal budget suggests that changes to capital gains tax could see investment shift from property to shares. The current flat 50 per cent CGT discount will be replaced with indexation aligned with inflation, with a minimum tax rate of 30 per cent applying to real capital gains accruing from next July. The government has introduced measures to lessen the tax burden on smaller businesses, including making the instant asset write-off and loss carry back permanent. Link copiedShareShare articleInvestors in the share market are undercompensated for the impact of inflation under current capital gains tax settings, according to the budget. As expected, the federal government will scrap the flat 50 per cent capital gains tax discount for investments for more than 12 months, a measure largely sold as addressing intergenerational housing inequality. But the budget also highlighted the potential to shift investment away from existing properties, and into stocks and new properties. "The reforms to negative gearing and capital gains tax are expected to improve the efficiency of investment decisions, as they are more likely to be made for economic reasons rather than tax outcomes," the budget read. Federal budget live updates: For the latest on the 2026 budget, read our blog. Stock investors had raised concerns about CGT changes ahead of the budget, including younger Australians who had invested in shares instead of property due to being locked out of the housing market. An established private investor, Liam Walsh, holds $3 million of high-growth shares, chasing capital gains. "I'm looking for some tissues to cry into because nearly all of my income that I derive comes from capital growth," he told The Business. Liam Walsh supports CGT changes despite expecting to take a financial hit. (Supplied) Despite expecting to take a personal hit on the reform, Mr Walsh supports the policy. Broadly, however, data in the budget showed that investors in the Australian share market have been undercompensated for the impact of inflation by the current CGT settings. The CGT discount does not appropriately compensate investors in the share market, according to the budget. (Supplied: Treasury, ASX, ABS) For example, inflation made up 56 per cent of asset price growth for ASX 200 shares held for 10 years to March 2026. For the broader All Ordinaries index, inflation accounted for 53 per cent of growth. Over the same period, inflation accounted for 38 per cent of asset price growth for all property, meaning the flat 50 per cent discount would overcompensate for inflation. Devika Shivadekar, economist at consultancy firm RSM Australia, said the CGT changes would likely incentivise people to think about other methods of wealth building outside of property. "Australians' obsession with building property portfolios has, over time, created an inequity between the 'haves' and the 'hopefuls'," Ms Shivadekar said. "In isolation, CGT changes might cost share investors, but it will likely encourage people to look for investments outside of property." The head of capital markets at investment app Sharesies described the changes as signaling "a structural transition in how Australians are incentivised to build wealth". "By moving the needle from tax advantages towards market-driven returns, the focus for the everyday investor shifts from navigating tax structures to evaluating the fundamental quality of their investments," Jacki Neumann said ahead of the budget. The government is taking an axe to the capital gains discount, aiming to move investors away from existing property, towards new property and shares. (AAP: Lukas Coch) However, the changes will "change the equation" for growth investors, Ms Neumann said. "While a move toward an indexation framework aims for a more equitable environment, it creates a threshold where the tax benefits of indexation diminish once an asset's growth significantly outpaces inflation," she said. UBS equity strategist Richard Schellbach agreed that the CGT changes, combined with the winding back of negative gearing, could see stocks "improve their relative appeal" compared to property investments. In a note to clients ahead of the budget, he said that would increase the relative appeal of income stocks, which pay a reliable dividend, over growth stocks. In the lead-up to budget night, some high-profile investors had argued that scrapping the 50 per cent CGT discount could hurt startups, which often use employee share schemes. We want to know what issues matter to you ahead of the federal budget. Have your say. Startups utilise share schemes to attract talent, offering a potentially lucrative payday should the company succeed, making up for their inability to match the bigger salaries of their more established competitors. Employees would then be liable to pay tax

CGT changes could see investment shift to shares, budget suggests

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