Accountants headed for 'biggest tax planning period in years', says H&R Block

The introduction of major changes to trust taxation, CGT and negative gearing in this year’s federal budget means accountants are entering one of the ”most significant tax planning periods Australia has seen in years”, according to H&R Block Australia’s director of tax communications, Mark Chapman.

Chapman said the proposed reforms affect the three pillars that have underpinned Australian wealth creation for decades: negative gearing, concessional capital gains treatment, and discretionary trust structures.

”Historically, many long-term investment strategies have been built around a relatively stable framework of discounted CGT outcomes, leveraged property investing and flexible trust distribution arrangements,” he said.

”The Budget signals a possible structural shift across all of these areas simultaneously.”

Whenever major tax settings change, particularly those affecting existing investments and intergenerational wealth structures, Chapman said this naturally creates ”a large amount of strategic review activity”.

”Investors and advisers are now looking not only at future acquisitions, but also at whether existing structures and unrealised gains should be managed differently before transition dates apply,” he said.

He noted that the distinction between “grandfathered” assets under the old regime and investments acquired under the new regime could become critically important over time.

The reforms also potentially change the economics of long-term investing and succession planning, he added.

”For many Australians, negatively geared property combined with the 50 per cent CGT discount has been one of the most tax-effective long-term wealth accumulation strategies available,” he said.

”If negative gearing becomes restricted to newly built properties and the CGT discount is replaced by a CPI indexation model, investors may need to reassess the after-tax returns of leveraged growth strategies.”

Chapman said the proposed trust reforms could similarly have a material impact on how families distribute income, manage asset protection, and plan intergenerational wealth transfers.

”Trusts have traditionally provided flexibility in managing tax outcomes across family groups. Any tightening of trust taxation rules or distribution arrangements may reduce that flexibility,” he said.

”As a result, long-term planning may increasingly focus on diversification across asset classes; stronger emphasis on cash flow and yield; greater use of superannuation structures; reviewing debt and gearing levels; and more sophisticated modelling of after-tax outcomes over long timeframes.”

Chapman said that many existing structures were established based on the assumption that the current tax settings would remain relatively stable over the long term.

”When those assumptions change, it becomes necessary to revisit ownership structures, trust arrangements, investment timing, succession planning strategies and asset allocation decisions,” he said.

”Investors may also be reassessing whether certain assets still produce attractive after-tax outcomes under the proposed framework,” he said.

”For example, if future capital gains become more heavily taxed, there may be greater focus on investments producing sustainable income and cash flow rather than relying predominantly on long-term capital appreciation.”

Ahead of the transition periods for the reforms, Chapman said tax professionals and their clients should carefully review both existing unrealised gains and future investment strategies.

Chapman said some of the key issues likely to become increasingly important include:

• Whether assets may qualify for grandfathering.
• Whether there is merit in crystallising gains before reform commencement dates.
• Reviewing trust deeds and distribution strategies.
• Understanding the impact of future indexation rules.
• Reassessing gearing arrangements.
• Modelling future after-tax investment outcomes.

”Importantly, investors should avoid making reactive decisions purely based on headlines before legislation is finalised. However, understanding potential exposure early is likely to become increasingly valuable.”