The 2026 Federal Budget included several proposed tax reforms that could have significant implications for property investors, discretionary trusts, and long-term investment planning.
These are some of the biggest changes we’ve seen in around 25 years, and they’ll likely affect most people in some way. The key thing to remember is that everything is future-dated, so there’s no need to rush or make any knee-jerk decisions. It’s more important to take the time to understand how it might impact you and with our support, plan ahead accordingly.
If you own investment property, invest outside super, use debt recycling strategies or are planning for retirement, these announcements are worth understanding.
Capital Gains Tax (CGT) reforms
The Government has also proposed major reforms to the Capital Gains Tax system from 1 July 2027.
Currently, individuals and trusts are generally eligible for a 50% CGT discount on assets held longer than 12 months. Under the proposal, the 50% discount would be replaced with an inflation indexation method and a minimum 30% tax on capital gains.
The proposed rules would apply to assets including:
- Investment properties
- Shares and managed investments outside of super
- Other CGT assets held by individuals and trusts
Importantly:
- The family home remains exempt from CGT
- Superannuation funds are excluded from these proposed reforms
- Existing gains accrued prior to 1 July 2027 would continue to be treated under the current system
For assets owned before 1 July 2027, the Government intends to effectively split the gain into two periods:
- Growth accrued before 1 July 2027 would continue to receive the current CGT treatment
- Growth accrued after 1 July 2027 would fall under the new proposed regime
This means existing investors are not being fully shifted into the new rules retrospectively.
Under the proposed system, future capital gains would instead have the asset cost base indexed for inflation. The Government has indicated this is designed to tax “real gains” rather than gains purely caused by inflation.
Here’s a worked example:
There is also a proposed carve out for new residential builds, where investors may still be able to choose between:
- The existing 50% CGT discount, or
- The new indexation method
The proposed reforms do not currently impact superannuation funds, which may further strengthen the long-term tax effectiveness of superannuation as an investment environment.
Negative gearing changes
From 1 July 2027, the Government is proposing to limit negative gearing benefits on residential property investments to new builds only.
Under the current rules, losses from an investment property can generally be used to reduce other taxable income, such as salary or business income. Under the proposed changes, this would no longer apply to established residential properties purchased after the announcement period.
The proposed transitional arrangements are important:
- Existing residential investment properties already owned, or already under contract before 7:30pm AEST on 12 May 2026, will retain their current negative gearing treatment indefinitely unless sold
- Established residential properties purchased between 12 May 2026 and 30 June 2027 may still be negatively geared during that period, but not beyond 1 July 2027
- Established residential properties purchased from 1 July 2027 would no longer be eligible for negative gearing against salary or other personal income
- New residential builds would continue to retain access to negative gearing concessions under the proposed rules
Under the proposed rules, losses on affected investment properties could no longer be used to reduce personal taxable income such as wages or business income. Instead, those losses would be carried forward and able to be offset against future residential property income or capital gain.
Importantly, these proposed changes are specific to residential property and do not impact the deductibility of interest on investment loans relating to shares or other investment assets. This is particularly relevant for investors using strategies such as debt recycling.
While these proposed changes are aimed more at future property purchases than existing investors, they may change how people think about borrowing, managing cash flow and structuring future investments.
30% minimum tax on discretionary trusts
Another significant proposal is the introduction of a 30% minimum tax on discretionary trust income from 1 July 2028. Under the proposal, trustees of discretionary trusts would pay a minimum 30% tax rate on trust income before distributions to beneficiaries.
Certain trusts are expected to be excluded, including:
- Testamentary trusts
- Superannuation funds
- Charitable trusts
- Deceased estates
The proposal appears aimed at limiting the ability to distribute trust income to beneficiaries on lower marginal tax rates.
Temporary rollover relief may be introduced to allow some business owners and investors to restructure out of discretionary trusts into other entities, such as companies, without immediate CGT consequences.
For existing Fuse Wealth clients, please rest assured that we will continue reviewing the detail and will be in touch to work through the implications relevant to your situation.
If you are not currently a client of Fuse Wealth and would like to discuss how these proposed changes may affect you, you can book a discovery call with our team.
