Growth or yield? These tax rules are reshaping ASX portfolios

A significant change to Australia's capital gains tax rules is now law, and it will reshape how many investors build ASX portfolios.

The measures were announced on 12 May 2026 as part of the 2026-27 Federal Budget, and they cleared the Senate in late June.

The changes do not bite until 1 July 2027, which gives investors close to a year to think about what it means.

What the new tax rules actually do

The 50% capital gains tax discount for individuals, trusts and partnerships is being replaced.

In its place comes cost base indexation, plus a minimum 30% tax rate on net capital gains.

Indexation means gains are adjusted for inflation before tax applies, which is broadly how the system worked before 1999.

Critically, this is not a property-only measure.

The rules apply to all CGT assets held by individuals, trusts and partnerships, and that includes ASX shares.

Transitional arrangements limit the damage, since only gains arising on or after 1 July 2027 fall under the new regime.

The separate negative gearing changes are confined to established residential property and do not touch shares.

Why the tax change tilts the scales towards yield

Here is the important part for ASX investors.

Capital gains are getting a less generous treatment. Franked dividends are not.

Franking credits still offset tax at your marginal rate, and the imputation system has not been altered.

For an investor on a marginal rate above 30%, a fully franked dividend now looks relatively more attractive against a long-held capital gain.

The gap is not enormous, but it is there, and it changes the after-tax ranking of growth versus income strategies.

Superannuation is worth a mention too, because the CGT discount for super funds is not currently expected to change.

That widens the after-tax case for holding growth assets inside super rather than in your own name. Here are a few examples of high yield shares or ETFs investors can consider.

Telstra as a franked income holding

Telstra Group Ltd (ASX: TLS) is a natural beneficiary of any rotation towards yield.

The telco lifted its interim dividend 10.5% to 10.5 cents per share, franked at 90.5%.

That came alongside EBITDAaL growth of 4.9% to $4.2 billion and an 8.1% lift in net profit to $1.2 billion. The company's on-market buy-back was also expanded to up to $1.25 billion during the half.

Analysts expect a 21-cent annual dividend for FY26, a yield of around 4.1% at recent prices. Telstra's full-year result is due in August.

Defensive earnings, a growing payout and near-full franking is a combination that suits the new settings well.

VHY for a yield tilt in one trade

Vanguard Australian Shares High Yield ETF (ASX: VHY) offers the same tilt without the single-stock risk.

The fund tracks the FTSE Australia High Dividend Yield Index and charges a management fee of 0.25% per year.

Distributions are paid quarterly.

The ETF's June quarter gross distribution was 56.55 cents per unit, comprising 40.65 cents of cash plus 15.90 cents of franking and foreign tax credits.

The trade-off is concentration, since the index leans heavily on banks, miners and other large dividend payers.

That is a risk if the resources cycle turns.

Foolish takeaway

Tax should never be the only reason to buy or sell a share.

But it is a cost, and a change of this size deserves consideration.

The practical takeaway is not to abandon growth investing. It is to be more deliberate about which assets you hold in which structure.

Growth assets may be better placed inside superannuation, while franked income can do more work in your own name.

The post Growth or yield? These tax rules are reshaping ASX portfolios appeared first on The Motley Fool Australia.

Motley Fool contributor Mark Verhoeven has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Vanguard Australian Shares High Yield ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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