Australian shares have pushed into record territory, with the ASX 200 closing above its previous February peak after a strong run across mining, healthcare and technology stocks. The rally has been supported by improving sentiment around the Strait of Hormuz, lower energy prices and a rotation away from some of the more expensive AI-heavy markets overseas.
This does not necessarily mean the Australian economy has suddenly found another gear. Much of the recent strength has come from changing global capital flows, while Australian households continue to face high interest rates, stubborn inflation and weakening property prices. August reporting season will now test whether company earnings can justify the higher share prices.
Investors are also digesting major changes to Australia’s capital gains tax system. The legislation has now passed its first stage, although the new CGT treatment will apply to gains arising from 1 July 2027 rather than immediately.
Under the reforms, the existing 50 per cent CGT discount will be replaced by a system that adjusts an asset’s cost base for inflation. A minimum tax rate of 30 per cent will then apply to the remaining real capital gain. Investors purchasing newly built homes will be able to choose between the existing discount and the new arrangements.
While the changes are still almost a year away from becoming operational, they could begin influencing investor behaviour much sooner. Property owners, share investors and discretionary trusts may reassess when assets are purchased, held or sold, particularly where substantial unrealised gains have accumulated.
Gold, meanwhile, has continued its recovery with considerably more conviction. Australian gold prices have gained almost AU$500 an ounce in only four days, while the US-dollar price recorded its strongest weekly rise since January.
The move has pushed gold decisively above its 50-day moving average and back to its highest level in around two months. Softer US employment conditions, reduced expectations of another Federal Reserve rate rise and a weaker US dollar have all helped restore demand.
After months of compressed trading and repeated attempts to find a bottom, gold is finally showing the momentum buyers had been waiting for. Some consolidation following such a rapid move would be normal, but holding above the 50-day average would strengthen the argument that this is more than another short-lived bounce.
Under the current system, an Australian individual or trust that owns an eligible asset for more than 12 months can generally reduce the taxable capital gain by 50 per cent.
For example, if an investor buys an asset for $500,000 and later sells it for $700,000, the nominal capital gain is $200,000. After applying the existing 50 per cent discount, $100,000 is added to the investor’s taxable income.
From 1 July 2027, the cost base will instead be adjusted for inflation, meaning tax is intended to apply only to the real increase in value. However, the resulting real gain will be subject to a minimum tax rate of 30 per cent.
This could produce very different outcomes depending on how long the asset was held and how much inflation occurred during that period. Long-held assets with substantial inflationary gains may benefit from indexation, while assets that rise rapidly over a shorter period could face a larger tax bill than they would under the existing 50 per cent discount.
The reforms apply to shares, investment properties and other CGT assets, but the family home exemption remains unchanged. Importantly, the new system applies only to gains arising after 1 July 2027, so investors should seek individual tax advice before restructuring assets or bringing forward a sale.
