Most federal budgets come and go without much practical impact on how Australians invest, structure their affairs, or plan their retirement. Federal Budget 2026-27 is different. The changes announced last night to capital gains tax, negative gearing and discretionary trust taxation are the most significant shift in the investment tax landscape in roughly thirty years.
Whether you own an investment property, hold shares with meaningful gains, run a business through a trust, or are simply trying to plan the next decade carefully, parts of this budget will matter to you. Not all at once, and not necessarily in a way that requires immediate action, but enough that it is worth understanding clearly now, while there is still time to plan.
Below is a plain-English walkthrough of the measures that matter most to the kind of households and businesses we work with every day.
The big picture
The backdrop to this budget matters. Inflation has re-accelerated on the back of higher oil prices following conflict in the Middle East, the Reserve Bank has lifted the cash rate three times this year, and household budgets are under genuine strain. Against that, the Treasurer has delivered a budget that pairs modest cost-of-living relief with what the government is framing as generational tax reform.
The headline numbers: an underlying cash deficit of $31.5 billion, net debt projected to reach 21.9% of GDP by 2029-30, and $63.8 billion in gross savings, most of which come from tightening the NDIS. On the revenue side, the government has chosen to raise money through investment tax changes rather than higher income tax rates. The political framing is fairness. The practical impact, for investors and business owners, is that the tax treatment of long-term wealth building is materially less generous than it was yesterday.
Capital gains tax: the change in 30 years
This is the single most important measure in the budget for most of our clients.
From 1 July 2027, the 50% CGT discount that has applied to individuals and trusts since 1999 will be abolished. In its place, two mechanisms will work together. The first is cost base indexation, which allows you to lift the cost base of an asset in line with CPI before calculating the gain. The second is a new 30% minimum tax rate that applies to net capital gains. The discount, which essentially halved the taxable gain, is gone.
In practical terms, if an investment grows well above inflation, which good investments are supposed to do, you will pay materially more tax when you sell. The government’s own modelling shows a property investor selling after ten years paying around $40,000 more in tax compared to the current rules. For faster-growing assets the gap is larger. Analysis circulating in the days since the budget suggests effective CGT rates on high-performing assets could land in the mid-40s as a percentage, which would sit at the upper end internationally.
The transitional rules are doing a lot of the work here, and they deserve close attention. For assets you already own, the 50% discount still applies to gains that have accrued up to 1 July 2027. Gains accruing after that date fall under the new indexation and minimum tax rules. This means asset owners will need to establish a market value as at 1 July 2027, either through a formal valuation or through an ATO apportionment formula expected to be released closer to the date. For listed shares the apportionment will be mechanical. For investment properties it is a more meaningful compliance task.
It is worth being clear about what is grandfathered and what is not. Assets you own today are not fully protected. Only the portion of the gain accrued before 1 July 2027 retains the 50% discount. Everything that accrues after that point falls under the new rules.
A few important exemptions:
- The family home remains fully CGT-exempt. The main residence exemption is untouched.
- Superannuation funds are excluded entirely. The existing 33.3% CGT discount inside super continues unchanged, which makes super relatively more attractive as a long-term investment structure than it was.
- The four small business CGT concessions are unchanged.
- New residential builds retain the option to use either the 50% discount or the new indexation method, whichever produces the better outcome for the investor. This is a deliberate carve-out designed to keep capital flowing into new housing supply.
For people holding assets with significant unrealised gains, the period between now and 1 July 2027 is genuinely a planning window. Decisions about when to sell, whether to contribute proceeds into super, how trusts and companies sit alongside personal holdings, and whether to crystallise positions before or after the transition all become more consequential. These are conversations worth having with an adviser rather than working through alone.
Negative gearing: new rules from last night
From last night, 12 May 2026, if you enter into a contract to buy an established residential investment property, you will no longer be able to offset rental losses against your other income, such as salary. Losses on those properties will be quarantined and can only be applied against future rental income or capital gains from residential property.
The grandfathering here is broad and worth emphasising. If you already own an investment property, or have exchanged contracts but not yet settled, you are fully protected. Negative gearing continues on your existing properties indefinitely under the existing rules. Anyone who held a property going into last night’s budget keeps the treatment they had.
New builds are also fully protected. Properties that genuinely add to housing supply, including new apartments, duplexes replacing a single dwelling, and construction on vacant land, retain full negative gearing access. Shares and commercial property are unaffected entirely and continue to negatively gear without restriction.
The decision-tree for property investors has changed materially overnight. Established versus new is no longer just a question of yield, capital growth prospects, depreciation and location. It is now also a much sharper tax question. For anyone in the middle of an investment property decision, that needs to be modelled rather than estimated.
Discretionary trusts: a 30% minimum tax from 2028
A meaningful number of our clients use discretionary trusts to hold family investments, run business income, or manage tax across a household. This budget makes a significant change to how those trusts work.
From 1 July 2028, a 30% minimum tax rate will apply to income distributed from discretionary trusts. The policy intent is to prevent income being streamed to lower-tax beneficiaries, such as adult children on low incomes, to reduce the family’s overall tax bill.
Mechanically, the trustee pays the minimum 30%. Beneficiaries with a marginal rate above 30% still pay their full rate. Beneficiaries on a marginal rate below 30% do not receive a refund of the difference. Corporate beneficiaries are specifically disadvantaged under the new rules, with the risk of effective double taxation, which will reshape how a lot of bucket company structures are used.
Several categories of trust are excluded:
- Fixed trusts
- Widely-held trusts
- Superannuation funds
- Special disability trusts
- Deceased estates
- Charitable trusts
- Trusts distributing primary production income, meaning farming families are not caught
Recognising that many existing trust structures will no longer be fit for purpose, the government has provided a three-year rollover relief window from 1 July 2027. During that window, families and businesses can restructure out of a discretionary trust into a company or fixed trust without triggering immediate CGT or income tax consequences. This is genuinely useful relief and should be considered carefully rather than dismissed.
For some trust holders the new rules will have very little impact. If all current beneficiaries already pay 30% or more in tax, the floor changes nothing. For others, particularly families that have been distributing to adult children or low-income spouses, the impact will be material and the restructuring window matters.
Income tax cuts: modest but real
On the more straightforward side of the budget, working Australians will see some tax relief over the next two years.
- The tax rate on income between $18,201 and $45,000 drops from 16% to 15% from 1 July 2026, and to 14% from 1 July 2027.
- A new Working Australians Tax Offset of $250 per year applies from the 2027-28 income year, applied automatically through your tax return.
- A $1,000 instant tax deduction for work-related expenses, with no receipts required, is available from 1 July 2026. Salary packaging of work-related items such as laptops and phones will be restricted to prevent double-dipping.
Analysis suggests the combined benefit for an average wage earner reaches roughly $2,800 per year by 2027-28. Welcome, though modest set against the cost-of-living pressures most households are dealing with.
Superannuation: no new changes, but the relative case is stronger
There are no new superannuation measures in this budget, which is itself worth noting. The Division 296 tax, the additional 30% tax on earnings attributable to super balances above $3 million, was legislated separately and remains scheduled to commence from 1 July 2026.
More importantly, super funds are excluded from both the CGT changes and the negative gearing changes. The 33.3% CGT discount inside super continues. For households with substantial assets, super has just become relatively more attractive as a long-term structure compared to holding the same assets personally. This is worth thinking about in the context of contribution strategies, particularly in the runway to 1 July 2027.
Business owners
Several measures matter for clients who own or run a business:
- The $20,000 instant asset write-off is now permanent for small businesses with turnover under $10 million, from 1 July 2026. The on-again, off-again uncertainty around this measure is finally resolved.
- A two-year loss carry back is available for companies with aggregated turnover under $1 billion from 1 July 2026. If a business has a loss year, it can offset that loss against tax paid in the previous two years and receive a refund, subject to franking account balance. This is meaningful for businesses navigating volatile conditions.
- Start-ups with turnover under $10 million can access loss refundability in their first two years from 1 July 2028, capped at the value of FBT and wage withholding tax paid.
- R&D Tax Incentive changes take effect from 1 July 2028. The offset rates increase, which is positive, but supporting R&D activities are removed from eligibility, which is negative for many current claimants. Refundability will be restricted to companies under 10 years old. If your business currently claims R&DTI, this needs specific review.
- The ban on non-compete clauses for workers earning under $175,000 takes effect from 2027. This has real implications for workforce planning and how key staff are retained.
Housing: the investor side, and what it might mean for first home buyers
The CGT and negative gearing changes are clearly aimed at the investor side of the housing market. The government’s projection is that reduced investor activity will support an additional 75,000 first home buyers over the coming decade.
On the buyer-support side, the Help to Buy shared equity scheme has been expanded, with income caps lifted to $100,000 for singles and $160,000 for couples, alongside higher property price caps. $2 billion in infrastructure funding is being directed at accelerating new housing supply through the states. The ban on foreign purchases of established dwellings has been extended to June 2029.
A realistic note. Most economists looking at the package are sceptical that these measures alone will move the dial meaningfully on affordability. The consensus view continues to be that supply, not investor demand, is the primary driver of Australian house prices. In the short term, reduced investor competition for established stock may create a window for owner-occupiers. That is likely to be partially offset by stronger investor competition for new builds, where the tax concessions remain intact.
Electric vehicles
The full FBT exemption on electric vehicles is being phased down. EVs under $75,000 retain the full exemption until 1 April 2029, after which a permanent 25% discount takes over. EVs between $75,000 and the luxury car threshold drop to a 25% discount from 1 April 2027. Existing novated lease arrangements are grandfathered.
For anyone considering an EV through novated lease, entering the arrangement before 1 April 2027 locks in the more generous treatment.
Other measures worth noting
- The passenger movement charge on international flights rises from $70 to $80 from January 2027.
- PBS medicines are capped at $25 per script from 1 January 2026.
- NDIS eligibility tightens significantly, with $37.8 billion in projected savings over four years and over 160,000 current participants affected.
- Defence spending increases by $53 billion over 10 years in response to the global security environment.
- The temporary fuel excise halving in place from April to June 2026 has not been extended. Petrol prices will rise from 1 July.
Key dates to have on your radar
- 12 May 2026 (last night): Negative gearing changes effective for new established property contracts.
- 1 July 2026: Income tax rate cut on the 16% bracket; permanent instant asset write-off; loss carry back available; Division 296 commences.
- 1 July 2027: CGT discount abolished; indexation and 30% minimum tax introduced; negative gearing restrictions fully bedded in; trust restructuring relief window opens.
- 1 July 2028: 30% minimum tax on discretionary trust distributions begins.
A substantial amount of detail, particularly around the CGT transitional rules and the mechanics of the trust minimum tax, will be finalised through ATO guidance and legislation in the months ahead. We will be following it closely and updating clients as the picture sharpens.
The bottom line
This is not a budget that calls for panic. It is a budget that calls for considered planning. For households with investment properties, share portfolios with significant unrealised gains, assets held in discretionary trusts, or business interests, the 18 months between now and 1 July 2027 is genuine planning runway. Used well, it can mean a materially better outcome. Left untouched, it can mean a materially worse one.
If any of what you have read above looks like it may apply to your situation, a complimentary strategy session is a good way to think it through. We work with clients on a fee-for-service basis, with no commissions, and our work is backed by a 100% money-back guarantee. You can book a session through our website or get in touch with our team directly.
Frequently asked questions
When does the 50% CGT discount end?
The 50% CGT discount ends on 1 July 2027 for individuals and trusts. Gains accrued on existing assets before that date retain the 50% discount. Gains accruing after that date are taxed under the new indexation rules with a 30% minimum tax. The family home and assets held inside superannuation are not affected.
Can I still negatively gear an investment property?
Yes, in several scenarios. Any investment property you already owned as of 12 May 2026 is fully grandfathered and continues to negatively gear under the existing rules. New builds, including new apartments, duplexes replacing single dwellings, and construction on vacant land, can still be negatively geared without restriction. Established residential properties purchased after 12 May 2026 cannot be negatively geared against salary or other non-rental income.
How does the new 30% minimum tax on discretionary trusts work?
From 1 July 2028, income distributed from a discretionary trust will be taxed at a minimum rate of 30%, regardless of the beneficiary’s personal marginal tax rate. Beneficiaries on rates above 30% continue to pay their full marginal rate. Beneficiaries on rates below 30% do not receive a refund of the difference. Fixed trusts, super funds, deceased estates, charitable trusts and primary production trusts are excluded.
Is my superannuation affected by these changes?
Super is largely unaffected by this budget. The CGT changes and negative gearing changes do not apply inside super. The existing 33.3% CGT discount inside super funds continues. The Division 296 additional 30% tax on earnings attributable to balances above $3 million was legislated previously and commences from 1 July 2026, unchanged by this budget.
What should I do with my investment property between now and 1 July 2027?
It depends on the property, the size of the unrealised gain, your other income, and your broader plans. The transitional rules give existing owners credit for gains accrued before 1 July 2027 under the old 50% discount, but everything after that date falls under the new rules. For some investors that makes a sale before mid-2027 worth considering. For others, holding makes more sense. This is the kind of decision worth modelling carefully with an adviser rather than estimating in your head.
Is there a planning window for trust structures?
Yes. The government has provided a three-year rollover relief window from 1 July 2027, during which families and businesses can restructure out of a discretionary trust into a company or fixed trust without triggering immediate CGT or income tax. For trust holders who decide their existing structure is no longer fit for purpose under the new rules, this window is meaningful and worth using rather than allowing it to lapse.
Consistently ranked one of Sydney’s top financial planners (Adviser Ratings), Brenton helps his clients life a great life by making the most of their money. Read his full bio here.
