𝐓𝐡𝐞 30% 𝐫𝐞𝐭𝐢𝐫𝐞𝐞 𝐭𝐚𝐱 𝐣𝐮𝐬𝐭 𝐜𝐡𝐚𝐧𝐠𝐞𝐝 𝐫𝐞𝐭𝐢𝐫𝐞𝐦𝐞𝐧𝐭 𝐩𝐥𝐚𝐧𝐧𝐢𝐧𝐠

Up until now, Australians have built wealth using a relatively simple strategy. Accumulate assets while working, then progressively sell them and realise the capital gains after retiring into a lower tax bracket.

The recent changes to Capital Gains Tax (CGT) make that strategy less effective for future self-funded retirees.

From 1 July 2027, not only will the existing 50% CGT discount be replaced by an indexation method, but individuals will face a minimum tax rate of 30% on the capital gains accrued from that date.

Importantly, gains accrued before 1 July 2027 are protected under transitional rules, even if the investment is sold later.

Nevertheless, the consequences for self-funded retirees can be significant.

Suppose a retiree who has no other taxable income sells an investment and has a $50,000 capital gain after indexation. Under the old rules the tax would be about $5,300 before offsets and Medicare. Under the changes, the tax would increase to nearly $15,000.

Call it what you like, but for self-funded retirees it is a retiree tax.

The question you need to ask is how you avoid it. Luckily there are a few ways:

1️⃣ Use superannuation. For Australians within ten to fifteen years of retirement, strategies such as maximising concessional contributions, using available carry-forward contribution amounts and considering non-concessional contributions may become increasingly valuable. If there is a big age gap between partners, consider super splitting.

2️⃣ Have a bigger main residence and downsize in retirement

The capital gains on your main residence are tax-free. This comes with a few considerations such as loan serviceability and increased holding costs, and it only works if the downsized home is cheaper than the one you are selling.

3️⃣ Investment bonds deserve another look

Earnings are taxed within the bond at a maximum rate of 30%. Once the bond has been held for at least ten years—and provided the 125% contribution rule has been observed—withdrawals come without any further tax paid.

4️⃣ Partial Age Pension eligibility

There is an exemption of the minimum 30% tax for recipients of certain government payments, including the Age Pension. Qualifying for even a small Age Pension payment in the year you are selling assets may have considerably greater tax significance than it does today.

Pre-retirement planning is increasingly about deciding how assets should be held, preserving flexibility and managing the tax consequences of eventually selling them.

The investors benefiting the most may not always be those earning the highest returns.

There is time to review existing arrangements, but restructuring should not be done unless there is a clear benefit for doing so.

The important question is not “What should I invest in?” it is needs to start with “how should I invest so it’s fit for purpose when I retire?”

We specialise in helping professionals and executives plan for their retirement and make the most of their investments and super. If you would like to discuss how you could benefit from independent financial advice, book a chat via the button below or contact us on 02 6269 3339 or at team@constructwealth.com.au.