Federal Budget 2026 implications for property, capital gains and trusts

From 1 July 2027, the proposed negative gearing changes would largely reserve full deductions for new builds and tighten how losses from existing properties can be used.

• Negative gearing will be limited to newly constructed residential properties.
• Losses from established properties will no longer offset other income (e.g. salary). Instead, they can only be applied against: Rental income, or Capital gains from residential property.
• Excess losses must be carried forward and used against future residential property income or gains.

 Grandfathering and transitional rules 

• Existing properties (held before 7:30pm AEST, 12 May 2026) will be grandfathered under current rules until sold.
• Properties purchased between 12 May 2026 and 30 June 2027 can be negatively geared until 30 June 2027, but not thereafter unless they are new builds.

 Treatment of new builds 

• Investments in newly constructed dwellings can continue to use full negative gearing rules, and access either the 50% CGT discount or indexation on sale.

 Who it applies to 

• Applies to individuals, companies, partnerships and most trusts
• Excludes superannuation funds (including SMSFs) and widely held trusts (e.g. most managed investment trusts)

 New builds are residential properties which genuinely add to supply. 

The table below helps to illustrate the key differences:

These changes will apply to individuals, partnerships, companies and most trusts. Widely held trusts (for example, most managed investment trusts) and superannuation funds (including SMSFs) are excluded.

From 1 July 2027, the Government is proposing a major rethink of capital gains tax, changing how gains are calculated, taxed and transitioned. 

• The 50% CGT discount will be replaced with an inflation-indexed cost base for individuals, trusts and partnerships
• A minimum 30% tax rate will apply to realised capital gains (on gains accruing from 1 July 2027)
• Pre-CGT assets (pre-20 September 1985) will become subject to CGT on gains accruing from 1 July 2027

 What stays the same 

• Main residence exemption remains unchanged
• Small business CGT concessions remain unchanged
• New residential builds may still choose between 50% CGT discount, or Indexation

 Transitional rules 

• No change for assets bought and sold before 1 July 2027
• Assets acquired after 1 July 2027 will be fully subject to the new rules
• Assets held before 1 July 2027 and sold after will be apportioned:
  Gains before 1 July 2027 taxed under current rules
  Gains after 1 July 2027 taxed under new rules
• Pre-CGT assets:
  Gains accrued before 1 July 2027 remain tax-free
  Gains accrued after this date become taxable

 Valuation approach 

A valuation at 1 July 2027 will be required to split gains, either by obtaining a formal valuation, or using an ATO-approved apportionment method. The ATO will provide guidance/tools to assist with this process.
 
Investors in new builds will be able to choose either the 50% CGT discount or indexation with the minimum tax when they sell the property. 

New builds are residential properties and include:

• Dwellings constructed on vacant land or
• Where existing properties are demolished and replaced with a greater number of dwellings.

Additional information:

• Knock-down rebuilds or substantial renovations that do not increase supply will not be eligible.
• A new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months.
• Subsequent purchasers of the dwelling will not be able to access the 50% CGT discount.
  The main residence will continue to be exempt for CGT purposes.

From 1 July 2028, discretionary trusts are proposed to face a new minimum tax regime that will change how trust income is ultimately taxed.

• Introduction of a 30% minimum tax on discretionary trust income
• The trustee will pay the minimum tax, regardless of how income is distributed
• Beneficiaries still declare distributions in their own tax returns

 How the tax works 

• Non-corporate beneficiaries receive non-refundable tax credits for tax paid by the trustee (can offset tax, but not generate refunds)
• Corporate beneficiaries do not receive credits, and will still be taxed on distributions received
• Overall effect is that Trust income will be taxed at a minimum of 30%

Key integrity measures

• Prevents use of “bucket companies” to defer tax or access refundable franking credits
• Franking credits must be used by the trustee to meet the minimum tax liability

 Exclusions 

• The rules do not apply to fixed and widely held trusts, superannuation funds (including SMSFs), deceased estates, charitable trusts and special disability trusts
• Certain income types are also excluded (e.g. primary production income, some minor and non-resident income, and certain testamentary trust assets).
  Restructuring Relief
• 3-year rollover relief (from 1 July 2027) to allow restructuring out of discretionary trusts (e.g. to companies or fixed trusts)
• Any restructuring should consider both short-term relief and long-term tax outcomes

 Who is most affected 

• Low-income beneficiaries (<$45,000) may face higher tax (30%) on trust distributions
• Income-splitting strategies using family members lose effectiveness
• Corporate beneficiaries lose advantages due to no credit access
• Businesses using trusts may face higher tax compared to company structures (particularly vs 25% company tax rate) 

The 2026 Federal Budget proposals represent a material shift in the taxation of property, capital gains and discretionary trusts, with implications for both investors and business owners. 

While transitional and grandfathering provisions provide some near‑term certainty, the proposed measures will increase the importance of structure, timing and long‑term planning. Affected taxpayers should take the opportunity to review existing arrangements, understand the potential impact on future legislative outcomes and consider whether alternative strategies may be appropriate ahead of the proposed commencement dates. Please note details of the final legislations may be subject to change and investors should not make any decisions based on the proposed announcements.