Overview of the Reforms
As part of the 2026–27 Budget delivered 12 May 2026, the Australian government introduced major changes affecting negative gearing, capital gains tax (CGT) discounts, and the treatment of discretionary trusts. These changes primarily affect those with investment properties or those using trusts to minimise tax. (pm.gov.au)
Key changes include:
- Negative gearing restricted to new builds from 1 July 2027—existing investment properties remain unaffected if acquired before 12 May 2026. (pm.gov.au)
- The 50% CGT discount (for individuals and trusts) will be replaced by inflation-adjusted indexation plus a minimum 30% tax rate on realised gains from 1 July 2027. Existing investments get a choice (use old discount or new system). (pm.gov.au)
- Discretionary trusts will face a minimum 30% tax rate on distributions from the 2028-29 financial year onwards, aligning treatment with ordinary income rules. (pm.gov.au)
Who Is Affected
These changes impact:
- Rental property investors looking to negative gear newer builds.
- Long-term investors holding assets for CGT but expecting the 50% discount.
- Families or entities using discretionary trusts for income splitting or tax planning.
- Those investing in property, shares or other appreciating assets expecting lower capital gains tax bills.
Practical Strategies to Prepare
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Review your investment mix now: If you're considering negative gearing, acquire qualifying new builds before 1 July 2027 or assess expected returns under the new CGT indexation system.
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Realise gains before 1 July 2027 (if advantageous): For investments where you expect large gains, selling before the reforms take effect may let you retain the 50% CGT discount. Do the math including transaction costs and tax implications.
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Trust restructure evaluation: Discretionary trust distributions will be taxed at 30% minimum. Consider changing trustee arrangements, distributing income earlier or converting trusts to companies if suitable.
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Stay informed about new builds vs existing properties: Negative gearing is preserved for existing investments but limited to new builds after 1 July 2027 only. Ensure you understand what qualifies.
Example Case
Case of Property Investor A:
- Bought an existing property in 2022. Under the reforms, still fully eligible for negative gearing after 2027.
- Owns a property acquired in 2028: only interest and losses on that asset may be deducted if it is a new build. If it’s an older build, the negative gearing benefits disappear.
- Plans to sell a share investment in 2026 with expected large gains: selling before 1 July 2027 allows use of 50% CGT discount. After that, gains taxed using indexation with minimum of 30%.
Action Plan
| Task | Suggested Timing |
|---|---|
| Audit your investment property portfolio | Immediately |
| Decide whether to realise gains before the reforms take effect | By mid-2027 |
| Consult with your tax adviser on trust distributions | 2026–27 year |
| Track spending & financing costs carefully for indexed CGT basis | Ongoing |
These reforms are amongst the most sweeping changes in Australian tax policy in decades—especially affecting wealth and property. Proper planning will help you manage risks and secure the best outcomes.