2026 Budget Tax Changes Explained: CGT, Negative Gearing and Trust Reforms - and what they mean for investors.
- May 14
- 5 min read
The 2026 Federal Budget has important proposed changes to Capital Gains Tax (CGT), Negative Gearing and Family Trust distributions that directly impact Financial Planning clients.
This blog provides general advice only, and the proposed legislation still needs to pass parliament.
The table below highlights some of the key changes to CGT and negative Gearing:
| Existing Investments | New Investments |
Negative Gearing | All existing (pre 12 May Budget announcement) investments can continue to utilise negative gearing. | For property, only ‘new builds’ can use negative gearing.
If you buy an existing property, it cannot be negatively geared from 1 July 2027.
Negative gearing on other investments such as shares, ETFs and managed funds (often called ‘debt recycling’ can continue to be used. |
Capital Gains Tax | All existing investments continue to receive the 50% CGT discount until 1 Jul 2027.
From this point, CGT is taxed at a minimum 30% on the ‘real’ gain. The real gain factors in inflation since the purchase date.
Investments purchased pre-CGT (1985) will remain CGT free for the period from purchase to 1 July 2027, and then from that date until eventual sale will be taxed at the minimum 30% on that period of gain.
However, an exemption applies where a person received a means tested government payment such as Age Pension. In this scenario the 30% minimum tax does not apply, and the net gain is taxed at a person’s marginal tax rate which could produce a lower effective tax rate, or perhaps no tax at all if below the tax free threshold. | ‘New builds’ can continue to elect between the 50% discount method and the inflation adjusted method.
All other new purchases incur CGT tax at a minimum 30% on the ‘real’ gain.
However, an exemption applies where a person received a means tested government payment such as Age Pension. In this scenario the 30% minimum tax does not apply, and the net gain is taxed at a person’s marginal tax rate which could produce a lower effective tax rate, or perhaps no tax at all if below the tax free threshold. |
Note: There are no changes to the CGT and negative gearing rules inside companies and superannuation funds. There is also no change to the ‘6 year rule’ for property.
Trusts
Discretionary family trusts are set to have a minimum 30% tax rate on net income from 1 July 2027.
This could be quite detrimental, especially for clients who utilise them for income splitting to lower marginal tax rate individuals (such as non-working spouses). It could also mean that some trusts are wound up because for sole beneficiaries, they may pay less income tax by having the investments in their personal name.
However, again there are exemptions for fixed trusts such as some Testamentary Trusts and Special Disability Trusts which are taxed at marginal tax rates which could produce a lower effective tax rate, or perhaps no tax at all if below the tax-free threshold.
Preliminary Strategy Considerations
Due to these changes, as a Financial Planner we immediately begin to think about some of the strategy considerations and alternatives for our clients. The key things to consider are:
1. Negative Gearing for ‘Debt Recycling’ may become more attractive
Borrowing against your home to purchase shares, ETFs and managed funds (often called ‘debt recycling’ can continue to be negatively geared and therefore may become more attractive.
However, it likely only remains a good strategy when utilised via a ‘cash out’ loan to be able to receive PPOR interest rates which are much lower than investment rates and particularly those offered by banks through margin loan facilities.
Cash out loans are typically only offered with smaller loan sizes (e.g. $100,000) so there will be less ability to amplify leverage benefits compared to good quality investment properties previously utilising negative gearing.
2. CGT on property sales for retirees
If a retiree was already planning on selling an investment property, the timing becomes a key strategy consideration:
Before 1 July 2027 the old CGT rules apply which could be more favourable from a tax perspective.
However, if the client is receiving Age Pension, they can continue to utilise the old CGT rules going forward, so they may not be incentivised to sell before this date.
A tailored approach to this decision needs to be made based on the client’s situation, goals and objectives.
3. Alternatives such as Superannuation, Primary Residence and Investment Bonds become relatively more attractive
As there has been no detrimental changes to these asset ownership structures they may become more attractive on a comparison basis:
Superannuation has always been the most tax effective structure and these changes only cement that. With any superannuation recommendations we need to consider a range of variables such as access age, contribution caps, transfer balance caps and more.
Paying down primary residence debt (or using an offset account) and/or making home improvements that improve the value are both options with considering given there is no change to the primary residence CGT exemption.
Investment bonds are taxed at the company tax rate and can receive CGT free status after a 10-year holding period making them intriguing options to explore.
Property Investment is still a worthwhile strategy, however, it needs to be strategic
The long term on good investment properties has historically been 7 - 10% p.a. when including capital growth and income yield, which is broadly in line with many high growth investment style portfolios.
If clients are hoping to use negative gearing, the new build properties acquired must have good capital growth potential.
For existing properties that are now purchased, again they must have good capital growth and when purchased it may make more sense to have them positively geared and in more tax effective structures such as superannuation or companies. If your situation has become more complex and you would like guidance, you can book a call below:
The purpose of this blog is to provide general information only and the contents of this blog do not purport to provide personal financial advice. We strongly recommend that investors consult a financial adviser prior to making any investment decision. The contents of the our blog does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular product, investment or security. The information provided on this blog is given in good faith and is believed to be accurate at the time of compilation.
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