2026 Federal Budget Tax Changes - CGT, Negative Gearing & Trust Reforms

The Australian tax landscape is undergoing its most significant structural shift in decades following the measures announced in the 2026-27 Federal Budget. For property investors, small business owners and family trust beneficiaries, the rules governing asset growth and wealth management are changing significantly.

This article provides an overview of the key reforms taking effect over the coming years, including changes to Capital Gains Tax (CGT), negative gearing restrictions and discretionary trust taxation, together with practical considerations for taxpayers.

1. Capital Gains Tax (CGT): The End of the 50% Discount

The headline announcement from the 2026 Federal Budget is the replacement of the long-standing 50% Capital Gains Tax discount.

What Is Changing?

Abolition of the 50% Discount

From 1 July 2027, the standard 50% CGT discount for individuals, trusts and partnerships will be replaced by an inflation-indexed cost base approach using Consumer Price Index (CPI) indexation.

Minimum 30% Effective Tax Rate

Capital gains arising after 1 July 2027 may be subject to a minimum effective tax rate of 30%, depending on the operation of the final legislation and the taxpayer's circumstances.

Grandfathering Provisions

Capital gains accrued before 1 July 2027 will retain eligibility for the existing 50% discount under transitional valuation and grandfathering rules.

Small Business Concessions Preserved

Existing Small Business CGT Concessions, including the:

• 15-Year Exemption
• Retirement Exemption
• Active Asset Reduction
• Rollover Relief

remain available for eligible taxpayers.

2. Negative Gearing Restrictions for Residential Property

One of the most significant changes for investors is the introduction of restrictions on claiming rental property losses against other income.

Key Details

Cut-Off Date

Established residential properties acquired after 7:30 pm on 12 May 2026 (Budget Night) will no longer allow rental losses to be offset against salary, wages or business income.

Affected deductions may include:

• Interest expenses
• Property management fees
• Repairs and maintenance
• Council rates
• Insurance costs

Quarantining of Losses

Any net rental loss will generally be carried forward and may only be applied against:

• Future residential rental profits, or
• Future capital gains from residential property investments

Grandfathering and Carve-Outs

Established Residential Property

Properties acquired on or before 12 May 2026 are generally expected to remain under the existing negative gearing rules.

New Residential Construction

New residential developments retain access to negative gearing benefits as part of broader housing supply initiatives.

Other Asset Classes Unaffected

The reforms do not apply to:

• Commercial property
• Shares
• Managed funds
• Business investments

Example: Property Investor

Sarah purchases an established residential investment property in August 2026.

The property generates a rental loss of $8,000 during the year.

Under the new rules, Sarah cannot offset this $8,000 loss against her salary income. Instead, the loss is carried forward and may be used against future rental profits or capital gains from eligible residential property investments.

For many investors, this could reduce annual tax refunds and significantly affect cash flow modelling when purchasing established properties.

3. Discretionary Trust Tax Overhaul

Discretionary trusts have traditionally been used by families and business owners for asset protection and income distribution flexibility.

The 2026 reforms introduce a new framework designed to limit income splitting arrangements.

Key Measures

30% Minimum Trustee Tax Rate

From 1 July 2028, distributions from discretionary trusts will generally be subject to a minimum 30% tax rate at the trustee level.

Beneficiaries will receive a credit for tax paid by the trustee.

Excluded Entities

The following entities are expected to remain outside the new regime:

• Fixed unit trusts
• Complying superannuation funds (including SMSFs)
• Special disability trusts
• Widely held trusts
• Existing testamentary trusts

Restructuring Relief

A three-year rollover relief period will commence on 1 July 2027, allowing eligible families and business groups to restructure assets out of discretionary trusts without triggering immediate CGT consequences.

This window may provide a valuable opportunity to review existing structures before the new trust tax rules commence.

Who Will Be Most Affected?

The proposed reforms may have the greatest impact on:

• Property investors purchasing established residential properties after 12 May 2026.
• Individuals holding long-term growth assets outside superannuation.
• Families relying on discretionary trusts to distribute income to lower-income beneficiaries.
• Business owners planning future business sales and succession strategies.
• High-income earners using trusts as part of broader tax planning arrangements.

Taxpayers with complex ownership structures should review their arrangements well before the commencement dates.

Summary Timeline

Action Plan for Taxpayers & Investors

1. Conduct a Structure Review

Review whether your current ownership structure remains appropriate, including:

• Individual ownership
• Family trusts
• Corporate beneficiaries
• Investment companies

2. Obtain Valuations Before July 2027

Consider obtaining independent valuations of growth assets before 1 July 2027 and maintain comprehensive acquisition records to support grandfathered gains.

3. Review Property Acquisition Plans

Investors looking to expand their residential property portfolios should carefully compare:

• New builds with continued negative gearing benefits
• Established properties subject to loss quarantining

4. Review Trust Distribution Strategies

Families using discretionary trusts should assess the impact of the proposed 30% trust tax and determine whether restructuring opportunities may be beneficial during the transitional relief period.

5. Plan Ahead

Many of the proposed reforms have future commencement dates. Early planning may create opportunities to:

• Simplify ownership structures
• Preserve grandfathered tax outcomes
• Improve after-tax investment returns
• Avoid rushed restructuring decisions

Final Thoughts

The 2026-27 Federal Budget reforms represent one of the most significant changes to Australia's tax system in decades. Property investors, business owners and families using discretionary trusts should begin reviewing their structures well before the commencement dates.

Early planning may provide opportunities to secure valuation evidence, review investment strategies, optimise ownership structures and prepare for the transition to the new tax framework.

If you would like assistance understanding how these proposed changes may affect your circumstances, contact Tax Logic for tailored tax planning and tax advisory services.

Disclaimer

This article provides general information only and does not constitute tax, financial or legal advice. The information discussed is based on proposed legislative reforms announced following the 2026-27 Federal Budget and may be subject to amendment before becoming law. Individual circumstances vary, and professional advice should be obtained before making investment, restructuring or asset disposal decisions.