Andrew Bell Market Update 2026 | Issue 13
Hi, Andrew Bell with you.
First, thank you for the feedback regarding my very long insights into negative gearing.
It was surprising so many people were not aware of all the ramifications. Although it is pleasing to see that for most people, it didn’t have any direct effect on them as they were already bought. But sadly it does on our first time new investors into the marketplace, and the biggest effect of all course is on tenants in Australia.
Now, today is a much quicker look at the changes to capital gains tax announced in the May 12th budget.
Let’s call it for what it is a simple increase in taxation for everyone who owns any form of investment asset. It’s not just restricted to real estate, but to every type of asset that achieves a capital gain, whether it be shares, bitcoin, cryptocurrency or most sadly, a business.
Governments of all persuasions are increasingly looking for additional taxation revenue because government spending continues to blow out rapidly. If governments could better manage their expenditure, there would be less need to increase taxation. But that’s simply not the case.
What I should say from the outset is for the great majority of properties in Australia, there is no capital gains tax at all. They are people’s principal place of residence and therefore completely capital gains tax exempt.
The tax only applies to investment properties, so rest easy. It’s for that reason that it is likely to drive more people into residential owner occupier market, where they will spend more money on their own home rather than investing in an income producing property. Not necessarily a good strategy, but often comes from people obsessed with avoiding tax.
Fundamentally, the budgets capital gains tax changes are a switch from the 50% discount model that’s operated for the past 27 years to an inflation index model. Whereas I would like to suggest it’s going from a very simple, straightforward model to a much more complex one. There is a phase in period over the next year, but fundamentally from the 1st of July 27 becomes fully operational.
I would suggest that most people don’t even try to work out how it might affect you personally. As there’s a number, quite a number of factors that come into play, such as inflation, the gain in property values all fall, any other potential adjustments that might qualify for your unique situation.
It’s interesting to note that the new inflation model could overall raise less tax than the government thinks. For example, if inflation stays high as it is now and price growth remains weak, which is starting to move in that phase. Then as we go through those cycles, it could well be that the index cost base could actually rise faster than the asset value. That could mean considerably less tax or in some cases no tax. Again, this relates to the variables I mentioned a moment ago.
For those with investment properties they’re holding now, you really won’t know what your capital gains tax situation will be until you actually sell the property.
What’s likely to happen is that many people owning investment properties will keep their investment property for a longer period to avoid paying the tax, for many it may well be that the sale of their property is an end of life situation, so that no tax is payable during the property owners lifetime.
I think one thing that we all need to remember is that we shouldn’t be making any impulsive decisions and rushing out to sell now. There will obviously be a capital gains tax to pay on the sale, even under the old 50% discount structure. So there is no avoidance of capital gains tax by selling now.
We should also remember the tax is only paid if there are profits. Now we don’t want to cut off our nose to spite our face, do we? By losing out on profits simply to avoid paying tax?
Let’s remember it’s only a tax on profits.
I’m going to suggest that foolishly, some people choose to avoid paying capital gains tax by simply not investing. But in doing so, people lose their share of capital growth that a property receives during the period of their ownership. That’s the part over and above whatever the tax might be.
Once again, as I mentioned in relation to negative gearing, as governments change, so do government policies. Just as governments of all persuasions have supported the 50% capital gains tax discount for the past 26 years, future governments beyond the current one, may choose to change these tax settings yet again.
The current federal opposition has already stated that if elected, it would reverse the proposed changes to capital gains tax. So these changes are not necessarily set in concrete, forever.
How awful it would be for someone to sell now and pay a capital gains tax today, only to discover that if they’d held the asset longer, they may well have sold the property at a lesser tax setting sometime in the future.
This is not just me talking politics. It’s not me talking at all politics. It’s purely about stating the facts based on the history of Australian governments and the reality that tax settings can and do change from one government to the next.
My final thought for anyone thinking of selling purely to avoid capital gains tax. The question is, what will I do with the proceeds of the sale when I’ve sold the property, where will I invest it going forward to grow my investment pool? And how do I avoid paying tax?
The answer is there’s nowhere else you can go other than leaving your money in the bank. Where inflation will erode its buying power year after year, and reducing your wealth. For those with investment properties, for most it will make more sense to hold the property for as long as possible, get the capital gain by holding it, and pay whatever the tax ultimately becomes that you have to pay, and be hopeful that tax changes become more favorable in the future.
I think the most important thing right now is simply to chill. There is no need to rush out and do anything right now. At your own pace, reach out to your advisors, whether they be your accountant or tax specialists. As often is the case these days, check with 2 or 3 to see whether you’re getting the very best information you can, and then come up with a decision that best suits you.
I certainly won’t be selling any of my investment properties. They’ve done so superbly for me, and I’m happy to get the profit and pay some tax on it, although I prefer to pay the lesser amount which we’ll be pushing for.
Well, that’s it for this fortnight. Next time I’ll be back with a lot more market information as we navigate this changing environment following five years of spectacular capital growth.
Until then, rest easy.
