How the tax changes reshape wealth and investment decisions

The 2026-2027 Federal Budget introduces a material shift in how Australia taxes capital, with significant implications for investors, property owners and family wealth structures. The changes are not yet legislated, but they signal a clear policy direction that will likely influence investment and structuring decisions over time.

This analysis highlights the proposed changes most relevant to financial advice. It focuses on how they may influence investment and structuring decisions over time, rather than the underlying tax mechanics. The practical impact of these measures will ultimately depend on individual circumstances and how the legislation is drafted.

Capital gains tax: minimum 30% tax

What’s been proposed:

The Federal Budget proposes a minimum 30% tax to apply to real capital gains accruing from 1 July 2027.

Why it matters:

This reduces the benefit of deferring asset sales until retirement, when marginal tax rates are typically lower.

For example, an investor may have acquired property during their working years with the intention of selling it later in life and reinvesting into more liquid assets to support retirement income.

Previously, it was common to delay selling assets until retirement, when marginal tax rates are typically lower. The proposed rules reduce the effectiveness of this strategy, resulting in higher tax outcomes where a carefully timed disposal previously provided an advantage.

Capital gains tax: from discount to indexation

What’s been proposed:

The Federal Budget proposes replacing the long‑standing 50% capital gains tax (CGT) discount with taxation of real (after‑inflation) gains.

Why it matters:

The level of growth achieved, the rate of inflation during the holding period, and the finalisation of transitional rules will ultimately determine the impact. The change will alter the after‑tax return profile of long‑held investments. In many scenarios, it will reduce the net capital gain investors receive.

Transitional measures will cover assets purchased prior to 1 July 2027, preserving the 50% CGT discount on any increase in value up to that date. The new methodology will then assess any gains from that point forward.

Careful record‑keeping will be important, particularly around the timing of costs included in the asset’s cost base, as this will determine the appropriate indexation applied on disposal.

Discretionary trusts: minimum distribution tax

What’s been proposed:

The Budget introduces a 30% minimum tax on distributions from discretionary trusts, starting 1 July 2028.

Why it matters:

This tax reduces the flexibility of using discretionary trusts for income‑splitting purposes.

For families with trust structures, the tax effectively operates as a minimum taxation rate applied at the trustee level. Beneficiaries, other than corporate entities, will receive a non‑refundable tax credit, though whether they can fully utilise that credit will determine the outcome.

In practical terms, families that can fully utilise these credits may be no worse off, while those that cannot face higher effective tax and may need to re-consider their structure. Distributions to corporate beneficiaries (bucket companies) may, in some cases, result in materially higher effective tax rates.

Trusts are still likely to continue to play a role in asset protection, estate planning and control, however their use as an income‑splitting tool becomes more constrained.

Negative gearing: changes focused on existing residential property

What’s been proposed:

From 1 July 2027, the Government will limit the ability to negatively gear residential investment properties, other than new builds.

Why it matters:

For property investors, this increases the importance of positive cash flow and reduces the reliance on tax losses to support property. Key points to note:

• Under the new rules, investors cannot apply losses (i.e. rent less expenses) from residential property purchased after 12 May 2026 against other income, such as employment income. An exemption applies where the property is a new build.
• Residential properties held at the time of announcement will retain eligibility for negative gearing until sale under grandfathering provisions.

Where an investment property does not generate positive cash flow, the overall return becomes increasingly dependent on capital growth after holding costs. This increases reliance on future price appreciation and introduces a more speculative element to the investment.

Final thoughts

As legislation develops, several key themes from a wealth planning perspective are worth considering:

• The government has materially shifted tax settings on investment returns, with a greater share of taxation falling on capital rather than labour.
• Superannuation is likely to remain a core long‑term wealth accumulation vehicle, compared to other increasingly taxed structures.
• Families must review trust arrangements carefully, as existing strategies may trigger higher taxation.
• Investors must reassess the net return on negatively geared property, particularly when it depends on income tax deductions.

From a broader economic perspective, the Budget is supportive of the economy in the near term. However, this also risks prolonging inflation pressures, particularly when combined with ongoing federal and state spending. For investors, this environment suggests:

• Interest rates may need to remain restrictive (higher) for longer.
• The yield on income investments is likely to remain attractive.
• Being selective with growth assets is likely to become more important, with a focus on businesses with pricing power, sustainable margins and inelastic demand.

Remember, the changes announced are not yet legislated. If you believe you may be impacted, a coordinated review with your accountant and wealth advisor is suggested.