Federal Budget confirms CGT, negative gearing and trust tax reforms: What property investors should consider next

The 2026-27 Federal Budget has now confirmed the proposed substantial reforms to CGT, negative gearing and discretionary and other non-fixed trusts, shifting the conversation for property investors from speculation to practical planning. 

The measures are not yet law, but the Budget papers clearly show the government’s intended direction: CGT and negative gearing reforms from 1 July 2027, and a minimum tax on discretionary trusts from 1 July 2028.

In our earlier article, we considered how proposed CGT reforms could affect property investors. With the Budget now released, investors should be looking beyond the headline tax changes and asking whether their current structures remain appropriate for future acquisitions, profit-sharing arrangements, succession planning, valuation evidence and eventual exits.

For some investors, the answer may be to preserve existing structures and avoid unnecessary transactions. For others, particularly those relying on discretionary trusts or considering new acquisitions, the Budget may create a timely opportunity to reassess whether a company structure – potentially with tailored share classes – could provide a more suitable framework. The Budget also flags a three-year window to undertake a restructure of existing discretionary trusts, though there is limited detail of exactly how this will work in practice.

 Trusts may still have a role, but should no longer be the automatic answer 

Discretionary trusts have historically been popular for property investment and family wealth planning because they provide flexibility in distributing income and capital between beneficiaries. That flexibility has supported tax planning, succession planning, asset protection and family group management.

The proposed 30% minimum tax on discretionary trusts will reduce some of that tax flexibility, noting in particular that trustees of discretionary trusts who receive franked dividends will be required to use their franking credits to pay the 30% minimum tax, and corporate beneficiaries will not receive a credit for tax payable by the trustee. 

However, trusts may still remain appropriate where asset protection, estate planning, family control or broader succession objectives are important.

The key point is that trusts should now be considered more deliberately. Investors should ask whether a trust is being used because it remains the best structure, or simply because it has historically been the default.

 Could companies become more relevant for future acquisitions? 

One practical consequence of the Budget reforms may be renewed interest in companies as property investment vehicles.

Companies have traditionally been less attractive for long-term property investment because they generally do not access the CGT discount. That remains an important limitation. However, if the relative benefit of the CGT discount is reduced under the proposed reforms, companies may become more relevant in certain circumstances – particularly where profits are intended to be retained, reinvested or shared between investors under defined commercial terms.

A company cannot replicate the full flexibility of a discretionary trust. It cannot simply decide each year who should receive income or capital. However, a company can be structured with different classes of shares to create more tailored economic outcomes.

 Share classes, dividend access arrangements and profit-sharing may return to focus 

The Budget announcements may cause some investors to revisit how profits from future property investments are shared during the life of an investment. 

In that environment, companies with different share classes may receive renewed attention. This is not a new concept. Before the introduction of the 50% CGT discount in 1999, Australia’s CGT system operated differently, including through cost base indexation for eligible assets. The Budget’s proposed reversion to indexation may therefore cause some advisers and investors to revisit structuring concepts that were more commonly considered in earlier planning periods.

Historically, private groups have used different share classes, including dividend access shares, to provide greater flexibility around how profits are distributed between shareholders. These arrangements were often considered where family groups or private companies wanted to distinguish between control, funding contributions, dividend entitlements, priority returns and participation in future value.

In a post-Budget environment, similar concepts may return to the structuring conversation, particularly for new acquisitions. Different share classes may be relevant where investors want to distinguish between capital contributed, risk assumed, income expectations, reinvestment strategy, control and participation in future sale proceeds.

However, these arrangements should not be viewed as replicating the flexibility of a discretionary trust. A company cannot simply determine each year who should receive income or capital. Any flexibility must be built into the company’s constitution, shareholder arrangements and share rights from the outset.

Care is also required because these arrangements have historically attracted Australian Taxation Office (ATO) scrutiny. The ATO continues to monitor dividend access share schemes, including arrangements that seek to distribute accumulated company profits in a tax-free or lower-tax form to associates of ordinary shareholders. The ATO has also stated in TD 2014/1 that certain dividend access share arrangements may be schemes by way of, or in the nature of, dividend stripping for Part IVA purposes. Notably, TD 2014/1 was preceded by Taxpayer Alert 2012/4, which sets out the ATO’s specific concerns with respect to the use of dividend access share arrangements to circumvent taxation laws and potential responses thereto. It will also be interesting to see whether the ATO will scrutinise, from an anti-avoidance perspective, trust restructures designed to fall within the three-year rollover period which may have mitigating tax exposures as a purpose (whether dominant or otherwise).

The practical point is that the Budget reforms may cause advisors and investors to revisit company structures that have been less common in recent years. However, any use of different share classes should be commercially driven, prospective and carefully documented. The company’s constitution and shareholder agreement should clearly address dividend rights, voting rights, capital rights, funding obligations, exit events and what happens if the property is sold or the company is wound up.

 Exit and liquidation should be planned upfront 

The Budget reforms also make exit planning more important at the time a property is acquired. Investors should not only consider how income will be shared during ownership, but also how value will be dealt with on sale, refinancing, succession or winding up.

If a company sells a property, the gain is made inside the company. The after-tax proceeds may then be retained, reinvested or distributed to shareholders as dividends, potentially franked to the extent franking credits are available. This may be appropriate where investors intend to pool capital and reinvest profits over time, but it should be modelled before the property is acquired.

If the exit occurs by way of share sale rather than asset sale, the commercial outcome may be different. A share sale may preserve the company structure, but it will depend on buyer appetite, financing, due diligence, landholder duty and broader commercial considerations. In practice, buyers may still prefer to acquire the property directly, which means the company structure should not be adopted on the assumption that a share sale will always be available.

On sale or liquidation, the rights attached to each class of shares will determine how value is shared between shareholders. This may allow a company structure to provide a more defined economic outcome than a simple ordinary share structure, particularly where different investors have different funding contributions or return expectations.

However, these outcomes need to be planned upfront. Introducing or amending share rights after value has already accumulated can materially increase tax, duty and anti-avoidance risk. In the context of the Budget reforms, the better planning opportunity is likely to be prospective structuring for new acquisitions, rather than retrofitting existing arrangements.

 Transfer duty remains a major practical constraint 

Any restructure response to the Budget must consider state taxes, particularly transfer duty.

Moving an existing property into a company will generally require transfer duty to be considered based on the unencumbered market value of the property. This may make restructuring existing holdings commercially unattractive, even where the income tax modelling appears favourable.

For that reason, the more practical response may be to review the structure for future acquisitions, rather than attempting to move existing assets.

Using a company also does not eliminate future duty risk. In NSW, landholder duty can apply where a person acquires a significant interest in a company or unit trust with NSW landholdings of $2 million or more. For private landholders, a significant interest generally means an entitlement to 50% or more of the property, while private unit trust thresholds can be lower (for example, 20% in NSW and Victoria and nil in Queensland). Landholder duty is calculated at the same rate as transfer duty, based on the unencumbered value of the relevant landholdings and, in some states (e.g., NSW, WA and Tasmania), goods.

This means future share transfers, share issues, redemptions, changes in economic rights or ownership changes in a landholding company may still require duty advice. Revenue NSW guidance notes that an interest in a landholder may be acquired in various ways, including the purchase, gift or issue of a share or unit, the cancellation, redemption or surrender of a share or unit, or the alteration of rights attached to a share or unit.

In relation to land tax, it is relevant to note that some states apply differing rates and thresholds to land held by a company compared with a trust and there is the potential that holding land in multiple, related companies may trigger land tax grouping (resulting in a reduced or nil land tax threshold). Therefore, the ongoing holding costs will also require consideration as part of any intended restructure.

 What should property investors do now? 

The Budget should not trigger rushed restructures. However, it should prompt forward-looking structuring advice – particularly around valuation evidence, record keeping, existing ownership structures and the structure used for future acquisitions.

One of the most important practical steps for current property owners will be to consider how they will support the value of their assets at 1 July 2027. Under the proposed transitional CGT rules, assets held before 1 July 2027 and sold after that date will generally need to distinguish between gains accrued before commencement and gains accruing after commencement. The Budget papers indicate taxpayers may be able to use a valuation of the asset at 1 July 2027, or an ATO-supported apportionment method, to determine the relevant post-commencement gain. This may also apply to legacy assets, including pre-1985 assets, where gains accrued before 1 July 2027 remain protected but future gains may be captured under the new rules.

This makes valuation planning a key action item. Property investors should not wait until the asset is sold to consider whether valuation evidence will be required. Current owners should speak with their accountant, tax adviser, valuer, finance broker and broader advisory network before 1 July 2027 to determine whether a formal valuation, market appraisal or other valuation support should be obtained.

 Engage with your advisers to determine next steps 

The Budget has not created a single preferred structure for property investment. Instead, it has made structuring, valuation evidence and exit planning both more important and complex.

For existing properties, the focus should be on preserving value, understanding grandfathering, identifying legacy pre-CGT assets, obtaining appropriate valuation support where required, and avoiding unnecessary tax or duty costs.

For future acquisitions, the focus should be different. Investors should ask whether a traditional trust remains the right vehicle, or whether a company with carefully designed share rights may provide a better framework for profit sharing, succession and eventual exit.

To fully understand how the proposed changes will affect your investments and broader financial plans, speak with your accountant or business adviser. They can help you assess the implications and determine the most appropriate path forward.
 

FOR MORE INFORMATION

To speak with an experienced accountant, tax specialist or financial adviser from RSM, please contact your local RSM office.