Tax changes announced in May’s federal budget are set to reshape retirement planning for Australians, with advisers warning that several long-standing strategies may no longer work under the proposed rules.
Sam Kitchen, director of Secured Wealth, said the measures were the most significant he had seen in 25 years as an adviser and would have particular consequences for people approaching retirement.
“They are the biggest changes I have seen in my 25 years as an advisor, and for pre-retirees, they mean that many of the tried-and-true strategies no longer apply,” Kitchen said.
Capital gains tax changes affect retirement planning
From 1 July 2027, the existing 50 per cent capital gains tax discount on sold assets is due to be replaced by cost-base indexation and a minimum tax rate of 30 per cent on real capital gains.
The proposed changes would apply to capital growth accrued from that date. William Buck wealth advisory partner Scott Montefiore said people who had held assets for many years would not need to sell immediately, as historic growth would continue to be taxed under the current rules.
“There is no mad rush to sell,” Montefiore said.
However, he advised people with substantial portfolios to obtain accurate valuations of their assets as at 30 June 2027. That would establish a value against which the existing capital gains tax rules could be applied, with the new regime covering growth after the changeover date.
Kitchen said strategies involving portfolios of exchange traded funds had previously allowed people to draw down assets in retirement while reducing their tax liability. The proposed 30 per cent minimum rate, he said, meant that approach would no longer offer the same benefit.
Montefiore added that the changes could affect the common practice of selling assets gradually during retirement, making personalised advice increasingly important for people with sizeable investments.
Proposed trust rules remain unsettled
The Government is also proposing a 30 per cent minimum tax rate on income distributed through discretionary trusts from 1 July 2028. Such trusts are commonly used by retirees, and the proposed rules would not be grandfathered, meaning they could apply to existing arrangements as well as new ones.
At present, income distributed through a discretionary trust is taxed at the recipient’s marginal rate, which can be as low as zero for retirees.
Montefiore said the proposal could significantly change how pre-retirees and retirees managed their cash wealth, but urged them to wait for the legislation to be finalised.
“This legislation is still a work in progress,” he said, noting that previous changes to superannuation had ultimately differed from the initial proposals.
Superannuation becomes more attractive
The advisers said superannuation was emerging as a clear beneficiary of the tax changes. For people still building their wealth, Kitchen said investment gains held in super could face an effective tax rate as low as zero after the age of 60, compared with a minimum 30 per cent rate on other capital gains.
“These changes make superannuation sexier,” Kitchen said.
He said alternative investments could remain attractive to wealthier Australians, particularly those with superannuation balances above $3 million, where tax on earnings increases. Investment bonds were one option, offering exposure to the stock market at a tax rate of 30 per cent, he said.
Montefiore said maximising superannuation before retirement now made financial sense under the proposed regime. Both advisers stressed that people should obtain advice based on their individual financial circumstances before making investment decisions.
