Federal Budget proposed tax changes: what they mean for Australian investors

The 2026–27 Federal Budget tax papers outline two significant proposed changes for Australian investors: reforms to negative gearing and capital gains tax, and a new minimum tax for discretionary trusts. 

The changes presented highlight why investment decisions should continue to focus on risk, liquidity, time horizon and diversification and less on headline tax concessions. 

How the negative gearing changes could affect property investors

For those investing in residential property, the most immediate change is to negative gearing (commercial property and other asset classes, such as shares, will continue to be treated under the existing arrangements). Many investors select property as an asset due to the tax benefits that it has historically provided, particularly to high-income earners.  From 1 July 2027, negative gearing for residential property will generally be limited to new builds. Established properties purchased after the announcement may still generate deductible losses, but from 1 July 2027, those losses will generally only be able to offset residential property income and residential capital gains, not salary or wage income. Unused losses can be carried forward. Existing residential investment properties held before the budget are proposed to be grandfathered, meaning current investors can continue to deduct rental losses against other income for those properties. 

Property investments in the future will place more emphasis on rental yield, debt levels, cash flow resilience and long-term capital growth and place less value on short-term tax deductions. New builds may become relatively more attractive because they retain access to negative gearing and, on sale, investors may be able to choose between the existing 50% CGT discount and the new CGT treatment. 

Superannuation funds, including SMSFs, will be excluded from these negative gearing changes. However, SMSFs already operate under their own tax rules, borrowing restrictions and investment strategy obligations, so property investment inside super still needs to be assessed carefully on cash flow, liquidity, diversification and compliance grounds.

What the proposed CGT reforms mean for investors

The capital gains tax reforms are also important beyond property. From 1 July 2027, it’s proposed the 50% CGT discount for individuals, trusts, and partnerships will be replaced with cost base indexation and a 30% minimum tax rate on real capital gains. Importantly, the reforms apply to gains accruing after this date, not gains already built up beforehand. However, this will include pre-1985 assets that have until now been GST-free. Assets held before the commencement date will need to separate pre- and post-commencement gains. 

This changes the investment equation. For individual trust and partnership investors, this may make higher-growth assets less tax-effective than higher income-producing assets, particularly for those on the top marginal tax rate. However, where returns are modest and inflation accounts for a meaningful part of the nominal gain, indexation may produce a similar or even better outcome than the current 50% discount. 

How discretionary trust tax changes may affect investment structures

Selecting the most appropriate entity in which to own investment assets will also face new considerations. From 1 July 2028, family and discretionary trusts are proposed to be subject to a 30% minimum tax on taxable income. The trustee will pay the tax, while individual and other non-corporate beneficiaries would generally receive non-refundable credits for tax paid by the trustee. Corporate beneficiaries would not receive these credits, limiting the benefit of using “bucket companies” to defer tax.

Trusts may remain valuable for asset protection, succession planning and family wealth management, but the tax benefit of income splitting may reduce for some investors. 

What the proposed changes could mean for superannuation and SMSFs

This could see the role of super as a tax-effective long-term investment structure return to the conversation. For investors with superannuation accounts, including SMSFs, the proposed changes appear to have limited direct impact. The Budget papers state that superannuation funds, including SMSFs, are excluded from the negative gearing changes, and complying superannuation funds are also excluded from the proposed 30% minimum tax on discretionary trusts.

What investors should consider next

Overall, the direction is clear: future investment decisions will need to be driven less by tax arbitrage and more by structure, cash flow and genuine investment merit. Investors should review if their assets are held in the right name or entity, whether trust distributions remain appropriate, are property debt levels sustainable without negative gearing benefits, and consider if superannuation or company structures may provide better long-term outcomes. This is not a reason to make rushed decisions, but it is a clear prompt to review existing structures before the proposed start dates.

Book an appointment to work out a strategy that suits your needs and circumstances with your financial adviser and tax accountant.