Aussies Swamping Income ETFs after CGT Changes

It seems that Australian investors are quick off the mark when it comes to dealing with tax changes.

With the major tax changes to the capital gains tax (CGT) and negative gearing only passing into law a month ago, investors were already hunting out income and are piling into exchange-traded funds (ETFs) focused on dividends and interest from bonds and cash.

While there was already strong support for passive investments, the tax changes have turbocharged demand with the amount of money flowing into cash and fixed interest ETFs more than doubling in June to $1 billion from $494 million in May, according to Betashares.

That made up 30% all Australian ETF flows for the month, and is the highest allocation to cash and fixed income since November.

Pivot Away from Growth

The pivot away from high growth strategies reflects a widespread view that such strategies are disadvantaged by the CGT policy changes and also the Reserve Bank’s three interest rate rises so far this year.

Higher interest rates are expected to hit rate-sensitive companies in high-growth sectors such as technology and start-ups.

Growth-focused share and ETF investments are disadvantaged by the Budget changes to capital gains tax, with the new system to start next financial year to tax all capital gains from the sale of assets adjusted for inflation at a minimum 30%, regardless of income.

Under the current system, investors are only taxed on half of the gains—known as the 50% discount rule—and are also taxed at their marginal income tax rate, which may be well below 30%.

Remaining unchanged was the system of franked dividends, meaning that dividend income will be taxed much more lightly than capital gains.

Potential CGT Reduction

ETF providers have pointed to the tax changes, rising interest rates and the increased attraction of funds such as ETFs and listed investment companies (LICs) which reduce potential CGT by progressively netting out capital gains and losses as key factors in the rise of dividend and income ETFs and many think the trend will keep running.

Not all ETFs are booming, though, with gold ETFs being sold down hard in June after a long run of good performances was interrupted.

However, the overall Australian ETF market—which has 494 products—is travelling well, with positive fund flows of $61.6b in the most recent 2026 financial year, up 48% from the previous year.

That record could well be broken in the current year with around $30b attracted so far and strong inflows continuing to build.