Stephen Knight

Interestingly, this only applies to new purchases after July 2027.

So you could still be buying up a storm of Australian property up until that date, because anything before that is still under the old rules.

And I think that's why when I've been scrolling on my Instagram, looking at my favorite Australian financial creators, there's this wonderful trend at the moment where people are posting

photos with Anthony Albanese, the Prime Minister of Australia, announcing that he's their new business partner because he's going to take potentially, call it half the gains without taking any of the risk.

So the Australian government's going to effectively be your new business partner.

But that inflation indexation is really interesting in terms of how it works.

So

In Andrew's example before, you sold a property for 700K that you bought for 500K, you paid 47 grand.

Now, under the new rules, let's say that you bought a property, again, for 500K, you sold it five years later for 700K, but over those five years, there'd been an average of 2.5% inflation per year.

So the way the new rules will work is the tax department would say if the property went up in value with inflation, it would be worth $566,000.

So the real increase, the increase above inflation is $700,000 minus the $567,000 and that gets you to $134,000.

And they would then say, okay, you are going to pay tax in this example at 47% on that $134,000 gain, which is about 63 grand.

So your effective tax rate has gone from 23% to 32%.

So it's gone up by about 50% in this example.

Yes, so you pay more tax because your whole gain is taxable.

So rather than half your gain not being taxable, they're saying the small proportion of any gain that is based off inflation, that's not taxable.

It's quite funny when politicians change the rules like this, and it does obscure what's really happening because there's a lot of moving parts in terms of how much comes from inflation.

But in this example, the investor would pay about an extra...

eight to nine percentage points worth of tax.

Yeah, the inflation rate from when you bought to when you sold.