Last night’s Federal Budget delivered the most significant tax changes to property and investment in more than two decades, particularly around capital gains tax, negative gearing and discretionary trusts. These measures are still proposals, and the final rules will only be clear once legislation has passed Parliament.
1. Capital Gains Tax: Goodbye 50% Discount, Hello Indexation and a 30% Minimum Rate
From 1 July 2027, the familiar 50% capital gains tax (CGT) discount for assets held more than 12 months is set to be phased out for most investors. Instead, gains made from that date will be calculated using an indexation method, where the original purchase price is adjusted for inflation before the gain is worked out. In practical terms, tax is intended to apply to the “real” gain above inflation, rather than simply chopping every gain in half before applying the marginal tax rate.
On top of this, a 30% minimum tax rate will apply to net capital gains for individuals, trusts and partnerships from 1 July 2027, although people receiving income support payments (including Age Pensioners) are not expected to be subject to this floor. Existing investments retain access to the current 50% discount for gains attributable to the period before 1 July 2027, so pre‑existing holdings are partly grandfathered. For investors in eligible new residential properties, there will be a choice between the traditional 50% discount and the new indexation method, subject to that 30% minimum rate.
The key implications are:
- Capital gains calculations become a lot more complex after 30 June 2027.
- Asset selection and ownership structure (personal, trust or company) will matter more when modelling after‑tax returns.
- Timing of disposals around 1 July 2027 becomes a critical planning issue, especially for large unrealised gains.
Question: Will the blend of grandfathered 50% discount and CPI adjusted gains be based on a valuation as at 30 June 2027 or an average over time? We don’t know yet and as seen with the Div 296 tax, things can change.
2. Negative Gearing: Limited to New Builds and Grandfathered Properties
The Budget confirms a major reshaping of negative gearing for residential property investors. From 1 July 2027, income losses from established residential investment properties purchased after 7:30pm AEST on 12 May 2026 will no longer be available to offset salary, business profits or other non‑property income. Those losses will instead be “quarantined” and can only be used against residential rental income or residential property capital gains, with unused amounts carried forward.
Properties already held before the announcement time are grandfathered, meaning current investors can continue to claim negative gearing deductions against other income under the existing rules. Importantly, certain newly constructed residential properties that genuinely add to housing supply will also retain access to full negative gearing, which effectively pushes investor demand toward new builds rather than existing stock. These changes will apply whether a property is owned directly or via a company, partnership or most trusts, but not through superannuation funds.
What this means in practice:
- Purchase of a negatively geared property for established homes will be far less tax‑effective for higher‑income clients as of 12/05/2026.
- New builds and off‑the‑plan developments that increase housing supply are likely to become the primary vehicles for tax‑effective residential property investment.
Question: Will the benefits of retaining your ability to offset income losses on an existing negatively geared property against salary income be worth more to you than the loss from the capital gains tax changes?
3. Discretionary Trusts: 30% Minimum Tax on Distributions
From 1 July 2028, the Government plans to introduce a 30% minimum tax on the taxable income of discretionary (family) trusts. Under the proposal, the trustee will be required to pay tax at a flat 30% on relevant trust income, and non‑corporate beneficiaries will receive a non‑refundable tax credit for their share of that tax when they lodge their own returns. The stated intent is to reduce the ability to stream income to adult family members on lower marginal tax rates to significantly cut the family’s overall tax bill.
Not every trust or type of income is expected to be caught. Early guidance suggests that some categories of income (such as primary production income, certain testamentary trust income and amounts already subject to non‑resident withholding) may be carved out, and the measure will not apply to fixed or widely‑held trusts, complying super funds, charitable trusts or deceased estates. A three‑year window from 1 July 2027 will offer expanded rollover relief to help families and small businesses restructure out of discretionary trusts into alternative entities like companies or fixed trusts if that proves more appropriate
For many of our clients who use family trusts to hold investments or operate businesses, the practical consequences include:
- After 1 July 2027 there will be reduced benefit in distributing income to low‑tax adult beneficiaries purely for franking credit refund purposes.
- The need to revisit whether a discretionary trust remains the right structure, or whether a company, fixed trust or a mix of entities may produce better after‑tax outcomes.
- Earlier‑than‑usual strategic discussions about succession, asset protection and control, to ensure any restructure within the three‑year window is not rushed.
Question: Do we maximise drawings from family trusts now, or await guidance on what concessions will be available to restructure without triggering CGT?
4. Proposals Only – Why It’s Too Early to Act Drastically
A critical point is that, as at Budget night, these measures are proposals only and are not yet law. Draft legislation, Senate negotiations and possible amendments could materially change the fine print, including definitions of “eligible new residential property”, carve‑outs from the trust minimum tax and the mechanics of the CGT indexation and 30% floor on capital gains tax. Acting too quickly—such as selling long‑held assets or dismantling a family trust in haste—could crystallise unnecessary tax and transaction costs if the final rules end up more generous than initially announced.
For now, the most sensible steps are:
- Start identifying which of your assets and structures are likely to be affected (investment properties, non‑main residence assets with large unrealised gains, family trusts).
- Stay close to future updates as draft legislation is released and refined.
As more detail becomes available and legislation progresses through Parliament, I will provide further updates and guidance on how these reforms may affect your strategy. In the meantime, if you would like to review your current structures or model how these proposals might affect you, please get in touch so we can look at your situation in detail.
