ASX 200 sinks before tonight’s budget. Are investors about to get a tax shock?

The S&P/ASX 200 Index (ASX: XJO) is sliding on Tuesday as investors turn their attention to tonight’s Federal Budget.

At the time of writing, the ASX 200 is down 0.51% to 8,657 points.

That puts the benchmark under pressure again after a weak start to the week. The index fell 0.49% on Monday as CSL Ltd (ASX: CSL) dragged the healthcare sector lower following another profit warning and impairment update.

The selling is also fairly broad. Right now, 138 ASX 200 stocks are trading lower, while 57 are higher and 5 are unchanged.

Let’s take a look at what’s behind today’s fall.

Budget night looms

The biggest local event is tonight’s Federal Budget, which Treasurer Jim Chalmers will hand down at 7:30pm AEST.

Investors will be watching closely for any changes to capital gains tax (CGT) and negative gearing.

For share investors, the key point is whether any CGT change stays focused on property or applies to other assets, including shares.

CGT can affect investors who sell shares, ETFs, managed funds, and other assets for a profit.

The current CGT discount allows eligible individuals to reduce a capital gain by 50% if they hold the asset for more than 12 months.

Reports suggest the government may change the discount as part of a wider tax reform package. ABC reported that the CGT discount could be linked to inflation, although a flat discount of 25%, 30%, or 35% may also be considered.

The Australian Financial Review has also reported that changes to negative gearing and CGT would apply to assets acquired from budget night, but take effect from 1 July 2027.

That timing would give investors and property buyers some room to adjust. But the market will still want clarity tonight.

If changes are limited to property, the direct impact on ASX investors may be smaller. But if shares are included, investors could face a lower after-tax return on future gains.

CSL and banks continue to weigh on the index

CSL shares are still in the red after Monday’s heavy fall. The stock is down another 2.76% to $97.97 at the time of writing.

ResMed Inc (ASX: RMD) is also weighing on the market. The stock is down 4.05% as its CHESS Depositary Interests (CDI) trade ex-dividend tomorrow.

The banks are also weaker. Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), and ANZ Group Holdings Ltd (ASX: ANZ) are all trading lower.

Miners offer support

Nonetheless, the main support today is coming from the resources sector.

BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), and Fortescue Ltd (ASX: FMG) are all trading higher by 2.85%, 3.17%, and 1.75%, respectively.

The miners are getting support from stronger commodity prices, with iron ore, gold, and copper all helping sentiment. Oil is also higher, with Brent crude above US$105 a barrel amid fresh concerns over the Middle East.

The post ASX 200 sinks before tonight’s budget. Are investors about to get a tax shock? appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended BHP Group and CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.