By Mark Churchmichael, Head of Tax and Compliance

With the Federal Budget now only weeks away, tax reform is once again dominating the conversation. From what’s being reported in recent days, a number of the measures under consideration sit squarely in territory that matters to private clients.

At Stewart & Smith, there are three areas we’re paying particularly close attention to in the lead-up to 12 May:

• The capital gains tax (CGT) discount
• Negative gearing
• Family trusts

Most of the commentary to date has framed these as levers to address housing affordability and intergenerational equity. That framing is fair enough, but the practical reality is that these same levers sit at the heart of how a lot of private wealth in Australia is built, held and passed on.

1. The CGT discount

The headline possibility here is a reduction in the 50% discount – with figures around 33% doing the rounds. If that change materialises, the detail will matter as much as the headline rate. A few of the open questions on our radar:

• Would any change apply only to assets acquired from a future date, or would it reach back to existing holdings?
• Could newly built housing be treated differently from the broader pool of assets?
• Might certain asset classes – listed shares, for example – be carved out?
• How will those changes translate into self-managed superannuation funds?

2. Negative gearing

Rather than one clean proposal, what’s been floated here is more of a menu. The measures reportedly on the table include:

• Limiting deductibility to new-build properties only
• Capping the amount of rental loss that can be offset against other income
• Tying access to the number of investment properties an individual holds. Some commentators have listed that number as two.

Any one of these in isolation would shift the numbers for a meaningful group of investors. A combination of them would reshape the strategy entirely.

3. Family trusts

This one has attracted less airtime than CGT and negative gearing, but it’s arguably the sleeper issue. Treasury has, on reports, looked at applying a minimum tax rate to trust distributions – somewhere in the 25–30% range. For clients with long-standing trust structures, that would be a material shift in how distributions are planned each year.

None of this is settled, and plenty of it may not land in the Budget papers at all. But the range of areas reportedly in play is broad enough that it’s worth private clients – and their advisers – thinking about where their current arrangements would be most exposed if any of these ideas moved from rumour to policy.

As always with tax reform, it’s not just what changes, but when it takes effect and how transitional rules are drawn that will determine the real-world impact.

We’ll keep tracking the commentary between now and 12 May and share further thoughts as things firm up.

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