CGT changes would hit most popular ASX stocks

The proposed CGT changes would most affect high-growth ASX stocks, because a lower CGT discount or inflation-indexed discount makes capital gains less tax-advantaged and can shift investor preference toward income- and dividend-paying shares. 1 2

What the change means for ASX investors

• The budget proposal is to replace the 50% CGT discount with a ,, with a minimum 30% tax on gains from 1 July 2027. 2
• That would apply to gains arising after 1 July 2027, so it is not an immediate change for existing unrealised gains. 2
• Investor commentary in the supplied material says the likely market effect would be a pivot away from growth equities and capital gainers and toward steady dividend payers. 1

Which stocks are likely to be hit most

• Growth stocks: companies valued mainly on expected future earnings growth rather than current income. 1
• Capital-gain-focused stocks: shares commonly held for price appreciation, where tax treatment matters more because returns are realised mostly through gains rather than dividends. 1
• Lower-dividend or no-dividend names would generally be less attractive relative to yield stocks if after-tax capital gains become less favourable. 1

Which types may benefit relatively

• Income stocks and high-dividend stocks could become relatively more attractive because their return profile relies more on cash distributions than on price growth. 1
• The commentary also suggests equities may look more attractive relative to property if property loses some of its tax advantage. 1

Here’s a likely winners and losers list for popular ASX sectors based on the proposed CGT changes:

Winners

1. Financials (Banks)
   • Winners: Major banks like Commonwealth Bank (CBA) and Westpac (WBC) may benefit as investors seek stable dividends.
   • Rationale: Higher interest rates and consistent dividends make them attractive.
2. Utilities
   • Winners: Companies like AGL Energy (AGL) and Origin Energy (ORG) could see increased interest.
   • Rationale: Steady income through dividends appeals to income-focused investors.
3. Consumer Staples
   • Winners: Companies such as Woolworths (WOW) and Coles Group (COL) are expected to perform well.
   • Rationale: Stable demand and reliable dividends make them appealing in a tax-averse environment.
4. Healthcare
   • Winners: Companies like CSL Limited (CSL) and ResMed (RMD) may be less affected due to strong fundamentals.
   • Rationale: Continued growth in healthcare spending supports their performance.
5. Real Estate Investment Trusts (REITs)
   • Winners: REITs like Scentre Group (SCG) and Dexus (DXS) may attract investors for their income potential.
   • Rationale: Higher dividend yields could make them more attractive compared to growth stocks.

Losers

1. Technology
   • Losers: High-growth tech stocks like Afterpay (now part of Block, Inc.) and Xero (XRO) may face declines.
   • Rationale: These stocks rely on capital gains for returns, making them less attractive under the new tax regime.
2. Consumer Discretionary
   • Losers: Companies like JB Hi-Fi (JBH) and Cochlear (COH) may see reduced appetite.
   • Rationale: Consumer spending is more sensitive, and growth-focused stocks may struggle.
3. Materials (Mining)
   • Losers: High-growth miners like Fortescue Metals Group (FMG) and Pilbara Minerals (PLS) could be negatively impacted.
   • Rationale: Their value is often derived from capital gains, making them less appealing with reduced tax benefits.
4. Energy (Growth-focused)
   • Losers: Companies focused on growth rather than dividends, like Woodside Energy (WDS), may be less favored.
   • Rationale: Increased focus on income may steer investors away from high-growth energy stocks.
5. Emerging Growth Stocks
   • Losers: Smaller, high-potential companies across sectors may become less attractive.
   • Rationale: Investors may prefer established dividend payers over speculative growth.

Summary

The proposed CGT changes could shift investor preferences toward income-generating stocks while creating headwinds for high-growth equities. Sectors like financials, utilities, and consumer staples are likely to benefit, while technology, discretionary goods, and high-growth mining companies may struggle.