Callen Dendle: Every meaningful financial decision comes down to a considered move: the right structure, the right timing, the right tax and legal advice before you act, not after. Welcome to The Considered Move, the podcast from Andersen in Australia. Over this series we work through the tax and advisory questions that matter most, whether you are running a business, looking after family wealth, or advising people who do. I'm Callen Dendle, National Technical Tax Director at Andersen, and I'll be guiding the conversation. Callen Dendle: With me across the series is Cameron Allen, Chief Executive of Andersen in Australia, who brings the firm's view to each conversation and turns the technical changes into what they mean in practice. Joining us today is Dermot Reiter, Senior Financial Adviser at APT Wealth Partners. He has spent more than a decade helping individuals and families with these exact decisions: when to sell, when to hold, when to buy, and how that fits into their plans. Callen Dendle: Today we are talking about the capital gains tax changes announced in the Budget, and what you need to do to act. Dermot, the question we keep hearing from clients is a simple one: what should I do next? Should I sell? Should I hold? That will drive the discussion today. But let's start with the lay of the land. Cameron, could you take us through what the changes really were on Budget night? Cameron Allen: Thanks, Cal, and welcome. The government has proposed replacing the existing 50 per cent capital gains tax (CGT) discount with a cost-based indexation regime from 1 July 2027. At the same time, a minimum 30 per cent tax would apply to capital gains. Essentially, it rebases a minimum floor for capital gains tax. Cameron Allen: Future growth on pre-CGT assets would also be brought into the tax net. That is a major consideration, particularly for affected individuals, partnerships and trusts, where a lot of family wealth is tied up in those old assets. It is broadly going to affect every asset class, so it is far-reaching. The only real carve-out is for new residential builds. It is quite invasive in many respects. But while the headline focuses on tax, the biggest story is the practical impact on investment decisions, succession planning, valuations and ownership structures. I'm really interested to hear your views on that, Dermot. Dermot Reiter: Thanks for having me, it's great to be here. It's a really topical area. In my career I've never seen a Budget generate so much public interest, and a lot of the articles and conjecture since have been fascinating. Some clients are a little apprehensive about the measures and their ability to get in front of them. It's important, first up, to take a deep breath, act calmly, gather the information and make high-quality, informed decisions. That is why having good advisers around the table, the likes of Andersen and APT Wealth Partners, matters. This is where we earn our keep. Dermot Reiter: The classic case is the calls I'm getting from clients: do I sell up? Do I move to Singapore? Do I do something drastic? The first port of call is to understand the role each asset in your portfolio actually plays. A great mentor of mine said financial planning is not that complex: it comes back to risk, return, cost and tax. If we go back to those basic principles, risk and return matter even more than they have historically, particularly in the property market. If you are not getting a tax deduction for negatively geared property, you need to think outside the box a little more and adjust the strategy. It's not that the system is broken and you can't get ahead; you just need to be more thoughtful about how you make those choices. Dermot Reiter: Where the tax strategy complements the overall financial advisory strategy is where the tax tail doesn't wag the dog. You look at risk and return, at what you expect an asset to generate, and then, within the rules, at where you can own it to optimise the after-tax outcome. For me it comes back to owning high-quality assets that can generate your required rate of return, both now and into retirement. That is the work we do in selecting those assets, and then collaborating closely with the accounting profession to get the best outcome for clients. Callen Dendle: Capital gains tax is where the tax calculation meets the investment decision. Cameron, you look at what people might owe from a tax perspective, and Dermot, you look more at what they should actually be investing in. Where do those two views meet with these changes, and where do they pull apart? Dermot Reiter: There are a few things there. The tax outcome can be optimised, but sometimes you do that through too much complexity. In the real world you are dealing with people and human behaviour, and multiple structures, trusts and companies bring complexity and time with them. You have to work out whether that is the right fit for each client. You also need to understand the expected return from each asset going forward. If there is an asset you were going to sell anyway, because it is not pulling its weight on income or capital growth, then regardless of the Budget changes you will probably still want to sell it. Dermot Reiter: The other big question is what you do with the money if you sell. If you are just going to put it back into an asset with similar risk and return in a similar structure, what is the point? Some of the gains people are sitting on are, in a sense, an interest-free loan from the government: you don't have to pay that tax bill unless you absolutely have to. So it becomes a question of trade-offs, and this is where the modelling and the tools on the financial planning side really matter. If I sell now, pay the tax bill and put the money into an alternative asset, what is my payoff period to recover the tax I've had to pay? Dermot Reiter: The motivation comes back to what my options are and how they fit the broader strategy. Another thing we are seeing is a lot of people with concentrated positions, particularly in property and direct shares, whether through an employment arrangement or because the tech sector has produced some stellar returns. If you have a concentrated position, even though it might hurt on the tax side to liquidate, it can still make sense from a longer-term strategy perspective. Risk and return have to come before tax in that decision. Cameron Allen: I agree with that. The real issue is not so much the removal of the 50 per cent discount, the move to indexation or the 30 per cent minimum tax, but how you separate yesterday's gain from tomorrow's gain. The practical questions we are seeing from clients and non-clients are: what is actually grandfathered in all of this, how is it measured, and will valuations be required from 1 July 2027? What records are needed, particularly for historic assets, and which structures remain appropriate? People are looking at these changes more holistically. Cameron Allen: The other important point is that we have only had broad announcements. We have not seen detailed legislation, and there is a lot to work through in how it interplays with other rules. But it comes back to whether it is the right investment, and whether that remains constant. We often say to clients: don't make an investment decision based on tax, or on the structure you are in. Speak to your financial professional, like APT, who can give you that advice and look at it holistically. Don't let the tax tail wag the dog. Callen Dendle: If someone came to you today and asked, should I sell everything, what do you step back and look at? How do you answer that question for a client? Dermot Reiter: I'd come back to the facts, and look at what the implications would be from a tax perspective, accepting that the existing rules are in place until 30 June 2027. Callen Dendle: Moving to how it affects people: not everyone is affected equally. If someone is wondering how this touches them, and wants a quick test to think it through, what should they be paying close attention to, Cameron? Cameron Allen: It's a good question. For existing investors, they are going to look at what their current portfolio and existing structures look like. Picking up Dermot's point about external market conditions, is it a case of continuing to hold, or of looking at a restructure or offloading a particular asset? The valuation piece is going to be interesting. I'd be looking at how that looks from 1 July 2027. Any disposals up until that date still fall within the existing rules, so valuations are a strong discussion point. Cameron Allen: Across the asset classes, listed shares are straightforward, because the information is readily available. Investment property is probably manageable to value. Commercial property is potentially more complex, especially if it is part of a larger development. Family businesses are potentially very complex, both to value and in how they interplay with the small business CGT concessions and a number of other rules. Farms are potentially very complex too, as are trust assets and pre-CGT assets. There are also inbuilt transitional rules that can apply to ownership, and to the percentage split between pre- and post-CGT assets. Cameron Allen: I don't think pre-CGT assets are the whole story, but they are one of the most important practical aspects. The key takeaway is that historical gains remain protected and future growth becomes taxable. The questions that remain are the valuation date, the evidentiary requirements, improvements, and the succession implications, certainly for families and intergenerational wealth. Callen Dendle: Dermot, from the wealth side, which of your clients are feeling it the most? Is it retirees, long-term investors with large unrealised gains, or people at the beginning of their financial planning journey? Where is the most tension? Dermot Reiter: There are two key segments that are really affected. The first is small business owners in the middle of their lives, in their 30s and 40s, who are trying to build, often in areas like the tech space where the cost base is effectively zero and a lot of their retirement strategy is tied up in the business. Despite my best efforts, a lot of them don't contribute to superannuation along the way, because their business is their life and they pour every dollar back into it. The idea is that they reach the end of that journey, there is a sale event, and they put the proceeds into super and take advantage of the small business CGT exemptions. Now the government is going to take a much larger percentage of that hard-earned effort, so they are really affected. Dermot Reiter: You've probably come across Robert Kiyosaki and Rich Dad, Poor Dad, and the idea of building wealth through property and levering up that exposure as much as possible. A lot of wealthy, high-income clients want to build wealth through that asset class, and losing the tax deduction from negative gearing affects them too. But the ones I think about most are those in the middle of their lives, in their 30s and 40s, just trying to get ahead. They are often paying the top marginal tax rate and trying to reduce it, through a trust or a mechanism like negative gearing, and they won't enjoy the same benefits. There was an interesting illustration in the recent review of the baby boomers on a cruise ship, waving to everyone. A lot of them are unaffected. Many of my clients who are loaded up in super, without much outside it, have escaped these changes unscathed. Callen Dendle: They've got the home loan already paid off. Dermot Reiter: A lot of them are unaffected, which is great news for them. But we will have to get a bit more creative for our younger clients. Cameron Allen: A lot of these changes are pushing more focus into superannuation, which seems to be largely unaffected based on the announcement to date. The one-third discount is still there, so effectively you are paying 10 per cent on capital gains for super balances under $3 million, and the new Division 296 rules don't come into play in pension phase or with the minimum tax. There is still a safe haven, so to speak, for investment. Dermot, are you seeing more enquiries from clients looking into self-managed superannuation? Dermot Reiter: Absolutely. The key takeaway from the Budget is that superannuation is the last bastion of real tax efficiency, maybe outside the family home. The asset mix across your different structures is really important. For quite some time, regardless of the Budget changes, I've been loading up my clients' exposure to growth assets in super, which has worked well for equities, property and alternative assets, and keeping fixed interest, defensive exposures, cash and term deposits in the trust, company and non-super structures. It is a little clunky, because you are managing risk, return, growth and defensive assets across different entities, but it works well from an overall after-tax perspective, because growth assets get the one-third discount. Dermot Reiter: The other aspect is that you currently have $2 million per member in a tax-free environment up to age 60. Even with the recent Division 296 changes, where an additional 15 per cent applies to balances above $3 million, I still think a lot of people will be better off keeping the money there and copping the additional tax. What is the alternative? You take it out, put it elsewhere, and pay at least 30 per cent. And 30 per cent is a little disingenuous, because it is really 32 per cent once you add the Medicare levy. So keep the money in super for as long as possible. I'm even talking to some high-net-worth clients about keeping money in the accumulation phase long term, because when you convert to a pension you are mandated to draw it down, though you do get the first $2 million tax-free. Callen Dendle: It's a good point about the $3 million balance. Cameron, you've had a few clients ask whether they need to tightly manage that $3 million balance, and you've been looking at that lately. Perhaps it is not as big a concern as people thought when the changes were announced. Cameron Allen: I think that's right. As you say, it is really 32 per cent, because of the Medicare levy on top. Are you just taking it out of super to put it into another structure that will be affected the same way for deferral? What I take away from a lot of these changes is that you shouldn't necessarily sell before 1 July 2027. Just through this conversation, the super strategy is now more relevant than ever, because it is the last bastion of tax efficiency in many respects, and concessional, with capital gains taxed at 10 per cent versus 30 or 32 per cent with the Medicare levy. That is something clients will be strongly considering. Dermot Reiter: On that, we are also seeing conversations about succession being brought forward. I like to look at things holistically across the family group. For a lot of people, they have worked hard and accumulated these assets not to consume them, but to set up the next generation. It is best to do that progressively over time, and to empower your beneficiaries and children with the values around money, not just the dollars. Topping up your children's super is a good way to do that progressively, and it gives them a tax deduction along the way. If you want to help them into the property market, there may be opportunities now, with prices coming back a little, to bring those discussions forward. Viewing wealth as a family strategy is more important than ever, because there may be other legislation around how inheritance is taxed in future. That has been on the agenda for a while, though we don't know any detail. Empowering the next generation and building wealth as a family is really important. Callen Dendle: Picking up an earlier theme, Dermot, if someone sold an asset purely for tax reasons, what does that put at risk in their overall plan? What broader lens should they bring to it? Dermot Reiter: As I say, the ATO doesn't refund regret. If you make a decision purely for tax purposes, it is likely not the best decision for your broader wealth and its accumulation over time. It comes back to dealing with the facts unemotionally and understanding the quality of the asset. This is where the research, and our role as advisers in getting high-quality information for clients, really matters, particularly for those who hold property. Valuation is going to be important as at 30 June, and so is the information you have about the future prospects of that asset. If you sell a great-quality asset just for tax reasons, you are harming the accumulation of wealth over the longer term. Dermot Reiter: Regardless of the Budget changes, if it makes sense to sell because it fits your broader strategy, because you want to diversify, or because you have an opportunity to move money into a more tax-effective structure like super, those are ticks in favour of selling. If it fits your succession plan, because you want to start transitioning wealth to the next generation, that is another. But you need a full set of information, and I wouldn't be jumping at shadows between now and 30 June 2027. The other big thing is the three-year transitional window from 1 July 2027. Take full advantage of it. Crawl over the details with your adviser: what the exemptions are, what carve-outs there are, and what opportunities you have. Don't do anything before you understand, with full knowledge, what the ramifications will be. Callen Dendle: Very good advice. Cameron, what is the most common misconception you are seeing from clients? Cameron Allen: There are quite a few who think this is the end of the world. Certainly some entrepreneurs have enquired about liquidating everything here and re-establishing themselves overseas. That is possibly a knee-jerk reaction, though some of them have valid points, given the amount of sweat equity and risk they take on in development. I don't necessarily see this as a conducive environment for that. But if I was to say one thing, I wouldn't move too quickly. Take this opportunity to review your existing position, take full advantage of the transitional window and the ability to restructure where appropriate, and make those decisions in a considered way by consulting your financial adviser. Cameron Allen: It's important to get that advice, review all of your assets, and work out whether they are ready to be realised or whether you might redeploy capital. I'd want to develop a balance sheet of unrealised gains, having regard to likely valuations. Again, we are having to take a bit of a future view, another 12 months or so until 1 July 2027. We still have time, but it will run out quickly, so I'd use that time appropriately over the next 12 months to assess your best position and where you need to adjust. Callen Dendle: From the finance side, what is the most common misconception you are hearing? Dermot Reiter: I've had a couple of clients ring up in a state of disarray, saying there is going to be a 30 per cent inheritance tax. The testamentary trust change is a big one, and many of my clients have provision for that structure in their will. The minimum 30 per cent tax rate does change the tax planning benefit of that structure considerably. I have a lot of clients with testamentary trusts who, in the classic case, have three children and have been able to stream around $20,000 to each of them, received effectively tax-free, which pays the school fees. Those days are effectively gone. Dermot Reiter: But a lot of people have the misconception that there is a 30 per cent tax on capital going into the structure. There isn't. It is 30 per cent on the income the structure generates. That is one of the big misconceptions. The other is that Anthony Albanese is going to be a 47 per cent business partner in your venture. That is not strictly true. There are small business CGT exemptions that are quite generous, and perhaps the caps need to be increased. Let's hope the government has the presence of mind to reform that and give small business owners trying to get ahead a bit of a carve-out. But the end tax rate is a lot lower than 47 per cent for the vast majority of small business owners. That is the other big misconception. The detail doesn't often filter through to the memes on social media. Callen Dendle: TikTok is not always correct. Dermot Reiter: No. Callen Dendle: I'll give you both a chance at a final comment. Any final words for the audience on these changes, and on what their next move should be? Dermot Reiter: The next move is to update the balance sheet and book in a time to see your adviser and your accountant. Get your advisers around the table and have a calm, measured conversation. Deal with the facts, then work out your options with the full set of information. Don't jump at shadows or get too emotional about what has come out of the Budget. Cameron Allen: I agree. There are certainly going to be classes of investors more affected by this than others. You can optimise your position, on the assumption that these rules will pass through both houses. Callen Dendle: And that is where we'll leave it. Dermot, thank you very much for joining us. If today's conversation raised something close to home, the considered move is to talk it through before you act. Your Andersen adviser can help you work out what it means for your situation. A quick note: everything we discussed today is general in nature and not advice for your circumstances. If this was useful, please follow The Considered Move and pass it on to someone who might enjoy it. You'll find the series at andersen.com and on LinkedIn, YouTube and your other favourite streaming services. I'm Callen Dendle from Andersen in Australia. Thanks for listening.