Following last night’s Federal Budget announcement, we wanted to provide a clear and practical summary of the proposed changes affecting property investors, family trusts and capital gains tax arrangements.
We appreciate that many investors will have questions over the coming weeks, and while these measures are still subject to legislation and parliamentary approval, understanding the direction of travel early is important for strategic planning.
The key theme across all reforms is this:
Existing arrangements are largely protected.
The major changes predominantly affect decisions made moving forward.
Below is a simplified overview of the four most significant proposed changes and what they may mean for investors.
- Discretionary Family Trusts
Current Position
Under the current system, discretionary (family) trusts allow trustees to distribute income across beneficiaries each financial year. Beneficiaries then pay tax at their own marginal tax rates.
This has historically created flexibility and tax efficiency, particularly where income could be distributed to family members on lower tax brackets.
Proposed Change
From 1 July 2028, discretionary trusts will be subject to a minimum 30% tax on taxable income before distributions are made.
Beneficiaries will still receive distributions and receive a tax credit for the 30% already paid. However:
- If their personal tax rate is above 30%, they will pay the difference.
- If their personal tax rate is below 30%, they cannot reclaim the excess.
Effectively, the ability to distribute income to lower income beneficiaries to reduce overall family tax exposure will be significantly reduced.
What This Means for Existing Trusts
Importantly:
- Existing trust structures remain valid.
- Assets already held within trusts are unaffected.
- Income earned prior to 1 July 2028 retains current treatment.
- No retrospective taxation has been proposed.
Important Exclusions
The following are proposed to remain exempt:
- Fixed trusts
- Testamentary trusts established under a Will
- Managed funds and widely held trusts
- Superannuation funds
- Charitable trusts
- Certain primary production income arrangements
Planning Opportunity
The Government has proposed a three year CGT rollover relief period from 1 July 2027, allowing investors and business owners to restructure from discretionary trusts into companies or fixed trusts without triggering immediate capital gains tax consequences.
For clients with older trust structures, this may create an important review window over the next 12–18 months.
Practical Takeaway
If you currently operate through a family trust, there is no need for immediate concern or reactive restructuring.
However, the effectiveness of future income splitting strategies may reduce materially from 2028 onward, particularly where distributions are made to beneficiaries on lower marginal tax rates.
A strategic review of trust structures before implementation dates will likely become increasingly important.
Please contact us on this if you require more information on a personal level and we will refer you to our direct contacts for review.
- Capital Gains Tax (CGT) Changes
Current Position
Currently, individuals and trusts receive a 50% CGT discount on assets held longer than 12 months.
This means only half of the capital gain is added to taxable income upon sale.
Proposed Change
From 1 July 2027, the Government proposes replacing the 50% discount system with:
- Cost Base Indexation
The original purchase price of an asset will be indexed for inflation, meaning tax will only apply to the “real” gain above inflation.
- A 30% Minimum Tax on Capital Gains
After indexation is applied, a minimum 30% tax rate will apply to net capital gains, regardless of lower marginal tax rates.
The Most Important Detail: Existing Gains Are Protected
This reform is prospective.
Any capital growth accrued before 1 July 2027 continues to receive the existing 50% discount treatment.
For assets sold after that date, gains will effectively be split:
- Growth accrued up to 30 June 2027 → existing 50% discount applies
- Growth accrued after 1 July 2027 → new indexed system applies
What This Means for Investors
This applies broadly across:
- Investment properties
- Share portfolios
- Business assets
- Other CGT assets
The family home remains exempt.
For many investors, particularly higher-income earners, future gains may attract more tax under the new regime compared with the current 50% discount system.
New Build Carve-Out
Importantly, newly constructed residential properties will retain access to a choice between:
- the existing 50% discount system, or
- the new indexed system.
This is clearly designed to continue incentivising investment into new housing supply.
Practical Takeaway
There is no indication that investors need to “panic sell” existing assets.
However, for clients with significant unrealised gains, modelling the timing of future sales before and after 1 July 2027 may become an important strategic exercise.
Long-term hold strategies, entity structures and asset acquisition decisions may all warrant review.
- Negative Gearing Changes
Current Position
Currently, losses generated from investment properties can generally be offset against salary or business income, reducing an investor’s overall taxable income.
Proposed Change
From 1 July 2027, losses from established residential properties will only be able to offset:
- rental income, or
- future capital gains from residential property.
Unused losses will carry forward indefinitely until utilised.
Critical Grandfathering Provision
Properties acquired before 7:30pm on Budget Night (12 May 2026) are proposed to retain the current rules permanently. This includes contracts exchanged before that time, even if settlement occurs later.
What This Means
Existing Investment Properties
No proposed change.
Investors who already own established residential investment properties retain full negative gearing treatment under the current rules.
New Purchases Going Forward
Established residential properties acquired after the Budget announcement will fall under the new system from July 2027 onward.
This significantly changes the after-tax economics of purchasing established investment property primarily for negative gearing purposes.
Major Exemption: New Builds
New residential builds remain exempt.
Investors purchasing:
- newly constructed properties,
- off-the-plan developments, or
- recently completed stock
will continue to receive full negative gearing benefits.
This is a major policy signal toward encouraging new housing supply over established housing investment.
Practical Takeaway
For existing landlords, there is currently no proposed loss of benefits.
However, investors considering additional acquisitions may need to assess the differences between:
- established properties, and
- new build opportunities
far more carefully moving forward.
This is likely to draw out a large investor buyer pool on existing established stock affecting pricing at point of sale.
Key Points to Remember
- Existing Arrangements Are Largely Protected
Current investment properties, accrued capital gains and existing trust structures have largely been grandfathered or protected through prospective implementation.
- Future Decisions Will Matter More
The reforms primarily change how future investments, gains and income distributions will be treated.
The strategic environment from 2027 onward will likely look materially different from today.
- There Is Time to Plan
Most measures are not proposed to commence until July 2027 or July 2028 and still require legislation to pass Parliament.
This creates an important planning window for investors to review:
- ownership structures,
- acquisition strategies,
- trust arrangements,
- CGT exposure, and
- long-term portfolio planning.
The best approach over the next 12–18 months is likely to be considered and planning not reactive decision making.
- Commercial Property – An Increasingly Important Conversation
While the majority of the Federal Budget changes are clearly targeted toward residential property investment, commercial property has largely been left under the existing framework.
This distinction may become increasingly important for investors reviewing long-term portfolio strategy.
What Has NOT Changed for Commercial Property
At this stage, the proposed changes to:
- negative gearing restrictions, and
- the revised residential CGT framework
are primarily focused on residential investment property.
Commercial property investments generally remain subject to the current taxation treatment, including:
- existing negative gearing arrangements,
- broader deductibility provisions, and
- standard commercial investment structures.
For many investors, this means commercial assets may now offer comparatively stronger after-tax positioning relative to established residential property acquired after Budget night.
Potential Shift in Investor Behaviour
We suggest that commercial property may become increasingly attractive to investors seeking:
- stronger net yields,
- longer lease security,
- reduced exposure to future residential policy intervention, and
- continued access to existing tax treatment.
As residential investment becomes more tightly regulated from a taxation perspective, commercial assets may increasingly be viewed as a strategic diversification or “safe haven” allocation within broader portfolios.
Important Trust Consideration
It is important to note that while commercial property itself is not directly targeted by the residential negative gearing reforms, the proposed discretionary trust changes from 1 July 2028 would still apply to trust-distributed income derived from commercial property investments.
Accordingly, investors holding commercial assets through family trusts may still wish to review long term ownership structures over the coming 12–18 months.
Additional Business & Infrastructure Measures
The Budget also included several broader business measures relevant to commercial property owners and small business operators, including:
- A permanent $20,000 instant asset write-off for eligible small businesses with turnover under $10 million from 1 July 2026.
- Extended access to simplified depreciation concessions through to 30 June 2027.
- Additional infrastructure funding designed to support commercial and industrial development corridors nationally.
These measures may provide ongoing support for commercial property activity, tenant demand and business investment confidence over coming years.
Practical Takeaway
For investors considering future acquisitions, the conversation is no longer simply “property versus property.”
The distinction between, established residential, new residential supply, and commercial property has now become materially more important from both a taxation and wealth portfolio perspective.
As always, if you would like to discuss how these proposed changes may affect your investment portfolio, please don’t hesitate to reach out.
Yours Sincerely,
Nikki Gervasi
Nicole Gervasi Property Group
