Tax reforms set to make private credit even more attractive

The Federal Budget's tax changes could see Australians pivot, exploring income-generating investments, writes Chris Paton, chief investment officer of La Trobe Financial.

The 2026 Federal Budget tax reforms may prompt many Australians to rethink their investment strategy, with income rather than capital growth likely to have a central focus.

A key reform, which is now law, is the scrapping of the 50% capital gains tax (CGT) discount that currently applies when eligible investments are sold for a profit.

Instead, from July 1, 2027, capital gains will be indexed in line with inflation and taxed at a minimum of 30%.

Industry analysis suggests this reform has the potential to substantially increase the tax Australians will pay on investments held outside of superannuation.

However, the CGT reforms may bring challenges that go beyond a higher tax take.

Accounting body CPA Australia says that under the new reforms, all CGT assets held on June 30, 2027 will need to have their market value established as a starting point for the new tax rules.

According to CPA Australia this will likely drive "a wave of complexity' that won't just affect high income earners, but will "reach deep into ordinary households".

Income is back in focus

Changes to CGT coupled with high living costs that Australians face on a daily basis, are driving a new trend.

Growing numbers of investors are rethinking how they invest - and income is definitely back in focus.

Quite simply, the ability to earn consistent, regular income is becoming more attractive than relying on uncertain (and less tax-friendly) capital growth.

Investing for income

The investment environment is changing, and tax reforms are just part of the story.

Investors also face increased uncertainty as a result of sharemarket market volatility and geopolitical risks.

The upshot is that Australians are placing greater value on investments that generate reliable income, particularly those less exposed to stock market swings.

By starting with outcomes in mind, it is a matter of selecting what works best in the wider world of investments - not just the same old portfolio holdings again and again.

This exploration is what La Trobe Financial has been calling the "missing middle" - sensible investments that deliver outcomes for investors, irrespective of whether they're from equities, cash, credit property, or other forms of investment.

Private credit is an incredibly broad and diverse market. Globally, the market is worth around $5.4 trillion, with the market forecast to grow to $7.8 trillion by 2029.

It has grown both in Australia and internationally.

Even the big super funds (which aren't directly affected by the tax reforms) are coming on board, with many making a substantial investment in private credit as they seek reliable income and portfolio diversification for their aging members.

Mortgage credit is a subset of private credit which has a track record for delivering regular, reliable income*. The mortgage credit market provides over $200 billion of opportunities each year for managers to select from, to generate diverse portfolios for investors.

Aiming for regular income, strong yields

For Australian investors, now may be the time to reconsider personal portfolios.

An investment in a portfolio of high-quality loans doesn't just have the potential to generate healthy returns and regular income.

These credit investments are not impacted by capital gains tax, so face no change in after-tax treatment. As with any investment, private credit carries risks, including the risk of loss of income or capital.

However, as part of a careful allocation, private credit also supports valuable portfolio diversification.

Better still, it's easy to get started.

With La Trobe Financial's 12 Month Investment Account, you can become an investor with as little as $1, and returns are paid monthly^.

With 70 years of experience behind us, La Trobe Financial has the expertise to navigate today's economic uncertainties.

To find out how that experience can make a difference to your investment returns, call us on 13 80 10 or visit to latrobefinancial.com.au to learn more.

Disclaimers: * Past Performance is not a reliable indicator of future performance. ^ The rates of return are reviewed and determined monthly, are not guaranteed, and may be lower than expected. The rates of return are determined by the future revenue of the Credit Fund, and distributions for any given month are paid within 14 days after month end.

Any Financial product advice is general only and has been prepared without considering your objectives, financial situation, taxation situation or needs. You should, before investing or continuing to invest in the La Trobe Australian Credit Fund, consider the appropriateness of the advice having regard to your objectives, financial situation or needs and consider the Product Disclosure Statement  for the fund.

La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 Australian Credit Licence No. 222213 is the responsible entity of the La Trobe Australian Credit Fund ARSN 088 178 321. It is important that you consider the Product Disclosure Statement (PDS) when deciding whether to invest or continue to invest in the fund. The PDS and Target Market Determination are available on our website.

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