Entity Setup
How Australia’s 2026-27 Budget Reshapes Entity Taxation: Discretionary Trusts & Capital Gains
Major recent reforms from Australia’s 2026-27 Budget are set to transform the way entities like trusts and investors are taxed, especially in areas like capital gains and discretionary trusts.
By NomadicTax Research Team • 5-8 min read • July 19, 2026
## Overview
Australia’s 2026-27 Federal Budget introduced sweeping business and investment tax reforms under the *Treasury Laws Amendment (Tax Reform No. 1) Bill 2026*. These changes, effective **from 1 July 2027**, are particularly relevant for discretionary trusts, property investors (negative gearing), and anyone realizing capital gains. Understanding and planning ahead is essential. ([aph.gov.au](https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r7493&utm_source=openai))
## Key Reforms & Practical Implications
| Reform | What changes | Who is affected | Practical example |
|---|---|---|---|
| **Capital Gains Tax (CGT)** reform | The 50% CGT discount is being replaced with inflation-based indexation. A **30% minimum tax rate** will apply to realized gains from 1 July 2027. ([aph.gov.au](https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r7493&utm_source=openai)) | Individuals, trusts and partnerships realizing gains from that date. Not retroactive for gains accrued prior to then. | Investor sells shares bought 2010 on 1 August 2027. Only inflation-adjusted gain taxed; minimal 30% rate kicks in. |
| **Negative Gearing limited to New Builds** | Losses on residential investment properties can only be deducted if those properties are **new builds** from 1 July 2027. Existing property investors are grandfathered if held before 12 May 2026, 7:30pm AEST. ([pm.gov.au](https://www.pm.gov.au/media/tax-reform-workers-businesses-and-future-generations?utm_source=openai)) | Prospective residential investors after that date; existing ones unaffected until disposals. | Someone buying an established rental property in 2028 cannot negatively gear losses against other income. |
| **Minimum Tax Rate on Discretionary Trusts** | From 1 July 2028, discretionary trusts will face a **minimum tax rate of 30%**, with some exceptions. Rollover relief available from 1 July 2027 for restructures. ([treasury.gov.au](https://treasury.gov.au/policy-topics/taxation/budget2026-27?utm_source=openai)) | Family and business trusts that distribute income discretionarily. |
## Planning Strategies
- Review investments and trust structures before 12 May 2026 (announcement date) to ensure eligibility for grandfathering.
- If considering negative gearing, prioritise **new builds** if the purchase will occur after the 1 July 2027 threshold.
- Trusts may want to lock in distributions or restructure ahead of 1 July 2028 to avoid the minimum tax.
- Assess whether holding assets long term until after major changes, or disposing before the new CGT regime, may be more tax-efficient.
## Actionable Checklist
- ✅ Identify any investments likely to produce capital gains after mid-2027; calculate potential tax under both the old 50% discount and new regime.
- ✅ For trusts, consult with a tax adviser on restructuring or locking in income distributions prior to 1 July 2028.
- ✅ Investors eyeing property, confirm whether property counts as a “new build” under the reforms.
- ✅ Keep detailed records to demonstrate acquisition date and qualifying status for grandfathering.
## Conclusion
These reforms represent one of the most significant overhauls in Australia’s investment‐oriented tax framework in decades. With effective dates stretching from 2027 to 2028, there’s time to adjust—but waiting too long may mean missing the chance to operate under more favourable legacy rules. Early strategic planning will be your strongest tool moving forward.