Overview of Key Reforms
The 2026-27 Federal Budget announces major reforms affecting homeowners, investors, and trustees. From 1 July 2027, these include:
- Restricting negative gearing deductions to new residential builds only. Existing property investments entered into before 12 May 2026 (budget night) are grandfathered. (budget.gov.au)
- Replacing the 50% CGT discount with an inflation-indexed cost base and introducing a minimum 30% tax rate on real capital gains. Investors in new builds will have the option to choose the old discount or the new approach. (budget.gov.au)
- Instituting a minimum tax rate of 30% on discretionary trusts from 2028-29 (with rollover relief from 1 July 2027) to better align trust taxation with income tax rates for individuals and promote fairness. (budget.gov.au)
Who’s Affected
- Current investors in existing residential property will retain negative gearing deductions under the old rules, but future purchases must be new builds to benefit similarly. ■
- Trustees of discretionary trusts (where beneficiaries can be selected) face higher tax burdens through the minimum rate. ■
- Property developers and first home buyers focusing on new builds may find advantages due to more favourable treatment. ■
Actionable Tax Planning Strategies
| Strategy | Action | Example |
|---|---|---|
| Accelerate CGT events | Sell assets with low gains before 1 July 2027 to take advantage of the 50% discount. | An investor holding shares with strong price appreciation might sell by 30 June 2027 to lock in the current CGT treatment. |
| Reassess property acquisitions | Prioritize purchasing newly built residential property to preserve negative gearing deduction eligibility. | If buying a rental home, aim for contracts with commencement or settlement (as required) prior to policy cutoff—or select new builds thereafter. |
| Restructure trust holdings | Review beneficiaries’ entitlements and trust distributions ahead of the 2028-29 minimum trust tax, possibly restructuring into entities where individual rates apply. | A family trust could consider converting certain income streams to beneficiaries rather than retaining income inside the trust. |
| Plan for compliance costs | Preparing for greater ATO scrutiny, updating accounting systems, and gathering required records for cost base indexation. | Ensure precise records of purchase prices, acquisition dates, inflation data, and improvements for all relevant assets. |
Examples
- Scenario 1: Investor Alice has two properties, one existing and one new. Existing builds she owns by 12 May 2026 keep negative gearing; new one qualifies also under new-build rules. But CGT discount for gains on both after 1 July 2027 shifts substantially. She calculates whether selling earlier is more tax efficient.
- Scenario 2: Family Trust Case: A discretionary trust distributing income disproportionately to beneficiaries may face minimum 30% tax unless structured properly—possibly moving distribution decisions earlier or converting to fixed trusts for certain income streams.
Summary & Next Steps
- The reforms offer strong incentives for shifting investment toward new residential housing, adjusting trust structures, and realising capital gains before the cutoff dates.
- Action now is pivotal: review asset portfolios, property purchasing plans, and trust structures.
- Consult with a tax professional to model your specific exposure, especially if you're holding or acquiring assets with expected gains after 30 June 2027.
Keep an eye on transitional rules: many changes have grandfathering or phased-in provisions that could make or break tax outcomes.