What Biden’s capital gains tax changes could mean for the ASX 200

What could Joe Biden’s latest proposal mean for the S&P/ASX 200 Index (ASX: XJO). Motley Fool Australia’s Scott Phillips breaks it down.
The post What Biden’s capital gains tax changes could mean for the ASX 200 appeared first on The Motley Fool Australia. –

investor scratching head as if trying to decide whether to sell asx share price

What could Joe Biden’s latest proposal mean for the S&P/ASX 200 Index (ASX: XJO)? Bloomberg is reporting US President Joe Biden wants to practically double the top capital gains tax rate in the country from its current rate of 20% to 39.6%. With an additional 3.8% Obamacare surcharge, the top rate would be 43.4%.

New York and California residents who earn over US$1 million in capital gains could see rates as high as 52.2% and 56.7%, respectively.

The news sent US stocks tumbling overnight, Australian time. The S&P 500 Index (SP: .INX) ended the day 0.9% lower. The index was relatively stable in morning trade before seeing a precipitous fall in the afternoon after the tax news became public.

Many are sceptical the changes can pass the US Congress, even though Joe Biden’s Democrats control both chambers. A hedge fund manager told Reuters the index would have fallen 2,000 points if investors believed it could pass.

For owners of ASX 200 shares, capital gains are treated as taxable income in Australia. The exception to this is that for any shares owned for at least a year, the net gain is discounted by half for individuals and a third for self-managed super funds. There is no discount for companies. As well, shareholders may be entitled to a franking credit refund if they were paid any fully franked dividends, depending on individual circumstances.

What, if anything, does The President’s latest proposal, and the reaction to it from US investors, mean for the ASX 200?

Tax changes in the US and the ASX 200

Motley Fool Australia’s own chief investment officer, Scott Phillips, says there may be some pain for shareholders in the short term.

“I think it’s common for the ASX to follow US markets, almost slavishly,” Phillips said. “The old saying is when America sneezes, Australia catches a cold.”

Phillips also pointed out there are a few ASX 200 companies that have operations and investments in the US. As well, he says large US investors hold shares in Australia and may offload them with their US stock. When there are more shares being sold than bought, it brings down prices. In economics, this is called the law of supply and demand.

In the long-term, however, Scott Phillips says ASX shareholders should have little to worry about over last night’s US market sell-off.

“There is no real fundamental basis [for the capital gains tax changes] to impact Australian equity markets.”

“There is little chance of these changes having a long-term impact [on ASX 200 shares],” he added.

Mr Phillips did add that any changes to the corporate tax rate in the US could be “more impactful” to Australian shareholders than possible changes to US capital gains tax.

President Biden and Senate Democrats have raised the idea of increasing the corporate tax rate from its current 21%. The floated tax rate of anywhere between 25-28% would still be lower than the 35% corporate rate that was in place in 2017.

More generally, Phillip’s believes any changes to capital gains taxes shouldn’t be a hindrance to investing in shares.

“[Capital gains] is taxed on profits after they’re realised. You’re still going to make a profit. You may not like paying the tax, but it’s not going to stop people from investing.”

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of February 15th 2021

More reading

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post What Biden’s capital gains tax changes could mean for the ASX 200 appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!