The 2026 Federal Budget includes some of the most significant reforms over the last two decades. The way many Australians invest, plan and build wealth will change. Remember, while these changes are not yet law, the Government is expected to introduce enabling legislation as quickly as possible.
Capital Gains Tax (CGT)
From 1 July 2027, the Government is introducing a new capital gains tax indexation regime. This is expected to operate in a similar way to the indexation method that applied between September 1985 and September 1999. Note your home and super funds are not impacted.
However, capital gains calculated under the indexation method will be subject to a minimum 30% tax rate, regardless of the taxpayer’s marginal tax rate for that income year. For individuals who received at least $1 of Government support (e.g. Aged Pension, Disability Support Pension, Parenting Payment), their normal marginal tax rates will apply.
The new rules will apply broadly to CGT assets held by individuals, trusts and partnerships, including pre-CGT assets acquired before 20 September 1985. The only exemption is new builds (see below).
The current 50% CGT discount was introduced by the Howard Government to encourage investment, reduce complexity in the tax system and make Australia more internationally competitive. The policy intent was to encourage people to invest in shares and businesses, take entrepreneurial risk, and hold investments for longer.
One likely consequence is that many people will view the tax-exempt treatment of the family home even more favourably. This may make some homeowners less willing to downsize to a less expensive home.
The introduction of a 30% minimum tax rate on capital gains also undermines the long-established strategy of deferring the sale of CGT assets until a year in which the taxpayer expected to have a lower marginal tax rate.
While the Government has not yet said how indexation will apply to capital losses, the expectation is that these will remain unindexed. In other words, losses would not be adjusted for inflation.
Practical Application of the New CGT Rules
This is how the CGT will be applied:
- CGT Assets sold before 1 July 2027 – no change to the current 50% CGT discount.
- CGT Assets acquired from 1 July 2027 – treated under the new regime where the cost base is indexed, and a minimum tax rate of 30% is applied to the real (net of inflation) gain. The only exclusion is new residential property builds (see below).
- CGT Assets acquired before 1 July 2027 and sold after 1 July 2027 – there are two parts to the CGT calculation:
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- for the portion of the gain made pre-1 July 2027: the 50% CGT discount will apply to the difference between the asset’s cost base and its value at 1 July 2027 and taxed at the owner’s applicable rate.
- for the portion of the gain made post-1 July 2027: indexation will be used to calculate the capital gain accruing from 1 July 2027 (using the asset’s value at 1 July 2027 as the asset’s cost base) and the gain will be taxed at a minimum of 30%.
Tracking cost-base information will become more important for investors. For our clients using custody platforms like BT Panorama, Netwealth and Macquarie, the platform will capture this cost-base information for you.
1 July 2027 Valuations will become critical
Establishing the value of CGT assets as at 1 July 2027 will be a critical exercise.
This will be particularly important for assets acquired before 20 September 1985, as future capital gains will be calculated by reference to the increase in value from 1 July 2027 to the date of the future CGT event, such as a sale.
From that date, gains will be subject to the new CGT measures, including cost-base indexation and the minimum 30% tax rate.
Taxpayers will either need to obtain valuations as at 1 July 2027 or use specified valuation methodologies that are expected to be made available by the ATO.
New Residential Housing
To maintain incentives for new housing supply, investors in new residential housing will be able to choose between applying the:
- 50% CGT discount, or
- the cost-base indexation method and 30% minimum tax on the capital gain.
Start-Up Businesses
One of the more significant impacts is likely to be on investments in start-up businesses.
In many cases, start-up investments have little or no cost base. This means that, on a successful exit, the capital gain may broadly equal the final sale price.
Under the current 50% CGT discount, half of that gain may be tax-free, subject to the usual eligibility rules.
Under the proposed indexation regime, however, there may be little or no cost base to index. As a result, almost the entire gain could be subject to CGT, with a minimum tax rate of 30% applying.
This may materially reduce the after-tax reward for taking early-stage investment risk, particularly for founders, angel investors and other early backers of successful private businesses.
Negative Gearing
The Government will limit negative gearing for residential property to eligible new builds, with the stated aim of moderating property price growth and directing investment toward additional housing supply.
Importantly, these changes do not affect borrowing to invest in commercial property or shares.
Negative gearing for established residential properties will be abolished from 1 July 2027 for properties purchased after 7:30 pm AEST on 12 May 2026.
Properties already held at 7:30 pm AEST on 12 May 2026, including properties under contract but not yet settled, will be grandfathered. These properties can continue to be negatively geared until they are sold.
From 1 July 2027, losses from established residential properties acquired after that time will no longer be deductible against other income, such as salary, business income, dividends or investment portfolio income.
Instead, those losses will only be deductible against:
- rental income from residential property; or
- capital gains from residential property.
Any excess losses will be carried forward and may be used to offset residential property income or residential property capital gains in future years.
What is excluded from the changes?
The proposed changes will not apply to:
- your home (primary residence)
- eligible new builds, reflecting the policy intent to support investment that increases housing supply;
- established residential properties acquired before 7:30 pm AEST on 12 May 2026, up until the property is sold;
- properties held in widely held trusts, such as most managed investment trusts; and
- all assets in superannuation funds, including SMSFs.
What qualifies as a new build?
Based on current guidance, eligible new builds are expected to include:
- a newly constructed apartment bought off-the-plan;
- a duplex created through a knock-down rebuild that replaces a single free-standing house, where there is a net increase in the number of residential dwellings;
- residential construction on previously vacant land; and
- a newly built property that has been occupied for less than 12 months before being first sold.
Practical Impact
For investors seeking exposure to residential property, buying established dwellings will become less attractive from a tax perspective.
Discretionary Family Trusts
The Government will introduce a 30% minimum tax rate on discretionary trusts from 1 July 2028.
The stated rationale is to make the tax system fairer by narrowing the gap between the tax paid on discretionary trust income and the taxes paid by wage and salary earners on comparable income.
Under the current rules, the trust itself does not usually pay tax. Instead, beneficiaries are taxed on the income they are presently entitled to each year, at their own marginal tax rates. If income is retained in the trust, the trustee is taxed at 47%.
The proposed rules do not eliminate the use of discretionary trusts, but they will make investment structuring decisions more complex.
How the new minimum tax will work
From 1 July 2028, trustees of discretionary trusts will pay a minimum tax of 30% on the trust’s taxable income.
Beneficiaries, other than corporate beneficiaries, will receive a non-refundable tax credit for the tax paid by the trustee. This credit can be used to offset the beneficiary’s income tax liability for that year.
This means:
- individual beneficiaries with a marginal tax rate above 30% will pay additional top-up tax (as usual);
- individual beneficiaries with a marginal tax rate below 30% may lose the benefit of any excess credit; and
- unlike franking credits, these trust tax credits will not be refundable.
Beneficiaries will still need to include their share of trust income in their personal tax returns.
The tax will be paid by the trustee because the trustee controls the distribution of income. The credit system then determines whether the beneficiary pays additional tax or loses any unused benefit.
Franked Dividends
Where a discretionary trust receives franked dividends, the trustee will be required to use the franking credits to pay the 30% minimum tax.
This is important because, under the proposed design, the benefit flowing to beneficiaries will be the non-refundable trust tax credit, rather than the original franking credits. This may reduce the value of franking credits for some beneficiaries, particularly those who would otherwise have been eligible for refundable franking credits.
Corporate Beneficiaries
The Budget papers suggest that corporate beneficiaries will not receive a credit for tax paid by the trustee. The Government has indicated this is intended to stop companies being used to work around the minimum tax. In practical terms, this design appears intended to discourage the use of corporate beneficiaries as a shelter for discretionary trust income.
Restructuring Relief
To support adjustment, expanded rollover relief will apply for three years from 1 July 2027.
This is intended to assist small businesses and other taxpayers who choose to restructure out of discretionary trusts into companies or fixed trusts.
The rollover relief is expected to provide relief from income tax consequences, including capital gains tax, where taxpayers restructure in response to the new rules.
The scope of this relief – yet to be announced – will be important. Taxpayers will need to understand which assets, entities, and restructures qualify, and whether stamp duty or other non-income tax consequences arise.
Exclusions from the minimum tax
The 30% minimum tax will not apply to all trusts, with the following expected to be excluded:
- fixed trusts;
- widely held trusts, including most managed investment trusts;
- complying superannuation funds;
- special disability trusts;
- charitable trusts (such as Private Ancillary Funds);
- fixed testamentary trusts;
- primary production income of farms;
- income from assets of discretionary testamentary trusts existing at the Budget announcement.
The Government has acknowledged that family trusts are often used for non-tax purposes, including holding family farming assets, succession planning and estate planning. The exclusions appear intended to preserve some of those uses.
However, the exclusion for testamentary trusts is not a blanket exemption. Importantly, testamentary trusts established after Budget night are intended to be caught by the rules where they are discretionary in nature.
Impact on Private Groups and Family Structures
In some cases, discretionary trusts may become less attractive compared with holding assets:
- directly in individual names;
- through companies; or
- through fixed trust structures.
However, tax is only one part of the decision. Discretionary trusts may still provide important non-tax benefits, particularly around asset protection, estate planning, family succession and control.
Discretionary Trusts versus Companies
While both discretionary trusts and companies may now involve an effective tax rate of around 30%, the practical differences remain important.
With a discretionary trust, there is flexibility to decide which beneficiaries receive distributions each year. However, income generally needs to be dealt with annually.
With a company, dividends can only be paid to shareholders. However, the company can retain profits and defer dividends until a later year, potentially when shareholders are on lower marginal tax rates.
This means the decision between a discretionary trust and a company will increasingly depend on:
- who the intended beneficiaries or shareholders are;
- whether income needs to be distributed each year;
- whether profits can be retained;
- asset protection needs;
- succession planning objectives; and
- the timing of future tax liabilities.
Key issues still to be resolved
Several design questions remain unanswered, including:
- how the trustee-level tax will be collected;
- how the credit regime will operate in practice;
- how distributions to corporate beneficiaries will be treated; and
- the precise scope of the restructuring rollover relief.
Superannuation
- No significant changes – The Budget contained no new measures of significance regarding superannuation. Super funds are exempt from changes to the CGT discount. Indeed, it now looks even more compelling for most people with member account balances between $3m and $10m to do nothing and instead pay the additional 15% tax on earnings under the new Division 296 rules.
- 1 July 2026 Contribution Caps – due to indexation, from 1 July 2026, the concessional cap increases from $30,000 to $32,500 and the non-concessional cap increases from $120,000 pa to $130,000 pa, meaning the new 3-year bring forward cap is $390,000.
Individuals
- Working Australian Tax Offset (WATO) – from 1 July 2027, a $250 WATO will be introduced and become a permanent tax offset for Australians for their income derived from work.
The WATO will increase the effective tax-free threshold for income derived from work by nearly $1,800 from $18,200 to $19,985 (or up to $24,985 for workers eligible for the Low-Income Tax Offset).
The proposed tax offset is intended to deliver targeted cost-of-living relief.
- $1,000 instant tax deduction – from 1 July 2026, Australian tax residents who earn income from work will be eligible for an instant tax deduction and will not need to itemise and claim work-related expenses if claiming less than $1,000. Individuals who incur work-related expenses greater than the instant tax deduction can continue to claim their deductions in the usual way. Charitable donations, union and professional association membership fees and other non-work-related deductions can still be itemised separately and claimed on top of the instant tax deduction.
The Government also intends to remove the ability for workers to salary package certain work-related items (such as laptops, mobile phones and tablets) and other work-related expenses. This has been introduced as an integrity measure to prevent ‘double dipping’ with the $1,000 tax deduction.
- Tax Cuts continue – legislated personal income tax cuts will commence this year and continue into next year. From 1 July 2026, the 16 per cent marginal tax rate (applicable to income between $18,201 and $45,000) will reduce to 15 per cent, with a further reduction to 14 per cent from 1 July 2027.
Small Business
- Asset write-off – From 1 July 2026, the Government will permanently extend the $20,000 instant asset write-off for small businesses with turnover up to $10 million. Assets valued at $20,000 or more can continue to be placed into the small business simplified depreciation pool.
- Loss Refundability – For tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier. Loss carry back will apply to income losses only and will be limited by a company’s franking account balance.
- Start-Ups – The Government will introduce loss refundability for small start-up companies. For tax years commencing on or after 1 July 2028, start-up companies with an aggregated annual turnover of less than $10 million will be entitled to convert tax losses generated into a refundable tax offset. The offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.
Aged Care
The Government will provide $1.4 billion over four years from 2026-27 to improve affordability and access to home care supports. This will include $1 billion over four years to ensure the service type ‘personal care’ (including showering) is fully funded by the Government for all care recipients in the Support at Home program.
Private Health Insurance Rebate for older Australians
The Government will remove the age-based uplift in the Private Health Insurance Rebate from 1 April 2027.
This does not mean the Private Health Insurance Rebate is being abolished for people aged over 65. Rather, the additional rebate currently provided because of age will be removed. Older Australians will still be eligible for the rebate, but the rate will be aligned with the rebate available to people under age 65, subject to the usual income testing.
In practice, this means many Australians aged over 65 will pay more out-of-pocket for their private health insurance premiums.
NDIS
Tightened eligibility requirements for the NDIS will result in 160,000 fewer people on the scheme by the end of the decade, with the Government projecting this will save $37.8 billion over four years.
FBT Treatment of Electric Vehicles
The current exemption will be narrowed over time, particularly for higher-value EVs. This will reduce the attractiveness of salary packaging and novated lease arrangements for EV.
There is expected to be no change for the 2026–27 FBT year, covering the period 1 April 2026 to 31 March 2027, meaning eligible EVs provided before 1 April 2027 should continue to receive the FBT treatment that applied when the arrangement commenced.
From 1 April 2027 to 31 March 2029
For the two FBT years from 1 April 2027 to 31 March 2029, the treatment will depend on the value of the vehicle:
- EVs up to $75,000 will continue to receive the full FBT exemption, applied through a 0% statutory formula rate.
- EVs over $75,000 and up to the fuel-efficient luxury car tax threshold will receive a 25% FBT discount, applied through a 15% statutory formula rate instead of the standard 20%.
- EVs above the luxury car tax threshold will receive no exemption or discount. Full FBT will apply.
As a guide, the fuel-efficient luxury car tax threshold for 2025–26 is $91,387.
From 1 April 2029, a permanent 25% discount on FBT will be available for all electric cars up to $91,387.
Defence
Defence expenditure will increase to $53 billion over the decade, including an extra $14 billion over four years, to deliver the National Defence Strategy. The goal is for defence spending to reach 3% of GDP by 2033.
Antisemitism
$219 million over four years will be available to support people affected by the Bondi terror attack. A further $207 million is set aside for combating antisemitism more broadly, plus $131 million to fund the Royal Commission on Antisemitism and Social Cohesion.
Closing Comments
The Government has used the well‑documented challenges in Australia’s housing market as a rationale for a broader set of changes to investment taxation.
There is merit in measures that reduce the structural advantages of investing in established residential property. Over time, the tax system has contributed to an imbalance, where housing has become a dominant asset class relative to productive investments. Improving affordability and access for younger Australians is a worthwhile objective.
However, the scope of the changes extends beyond housing and into the broader investment landscape. This is important because capital is not only directed toward residential property – it also supports businesses, innovation, and long-term economic growth.
From an investment perspective, the changes highlight an important principle: tax settings influence where capital flows. When the taxation of investment increases or becomes more complex, it can affect how and where investors allocate capital over time.
The broader fiscal context is also relevant. The Budget projects ongoing deficits and a continued reliance on income-based taxation. This reinforces a structural feature of the Australian system – high dependence on taxing labour and income, alongside increasing complexity in the taxation of capital.
For investors, the key takeaway is not to react to any single policy change, but to recognise the direction of travel. The system appears to be moving toward:
- a higher minimum level of taxation on investment returns, and
- reduced effectiveness of traditional tax planning strategies, particularly those based on timing and income shifting.
Importantly, this does not change the fundamentals of successful investing. Long-term outcomes continue to be driven by:
- disciplined asset allocation;
- diversification across asset classes and geographies; and
- maintaining an appropriate level of risk for the investor’s objectives
While the after-tax return landscape may evolve, the principles of investing remain consistent.
There are also broader considerations. Policies that affect investment incentives may have flow-on effects for business formation, productivity, and economic growth over time. However, these outcomes are uncertain and will depend on how both investors and policymakers respond in practice.
For clients, the most constructive response is not to speculate on policy outcomes, but to:
- ensure their investment structures remain appropriate;
- focus on after-tax, risk-adjusted returns; and
- maintain a long-term, evidence-based approach.
In a changing policy environment, clarity of strategy becomes more important – not less.
Contributed by friend of Alman Partners, Rick Walker of Lorica Partners.
Edited and closing commentary provided by Jason Kirk (CFP® Professional, SMSF Specialist Adviser, GradDip. App.Fin&Inv, B.Econ) is an Authorised Representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Any information provided to you was purely factual in nature. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.