What the 2026–27 Federal Budget Means for Individual Taxpayers and Investors
On Tuesday 12 May 2026, Treasurer Jim Chalmers handed down a Budget that, if legislated, will be the most significant shake-up of the tax treatment of investments in more than two decades. Three measures sit at the heart of it: a wind-back of negative gearing on established residential property, the replacement of the 50% capital gains tax (CGT) discount with indexation plus a 30% minimum tax, and a brand-new 30% minimum tax on the taxable income of discretionary (family) trusts.
For our clients — many of whom hold rental property personally or through a family trust — these are not small adjustments around the edges. They change the after-tax economics of property investing, of intergenerational wealth structuring, and of any arrangement that relies on streaming income between related trusts.
This article walks through the changes for individuals and investors, with worked examples covering both the advantages and the disadvantages under the new rules. We also highlight the impact of the 30% trust tax for clients who invest through a discretionary trust — including the very significant consequences when profits are distributed from one trust to another that has carried-forward losses.
At a glance — the three big changes
| Measure | Start date | Who it affects |
|---|---|---|
| CGT: 50% discount replaced by cost-base indexation, plus a 30% minimum tax rate on realised gains | 1 July 2027 | Individuals, trusts and partnerships holding any CGT asset (with carve-outs for new builds and income-support recipients) |
| Negative gearing: losses from established residential property quarantined to property income | 1 July 2027 | Investors who acquire established residential property after 7:30pm AEST on 12 May 2026 |
| Discretionary trusts: 30% minimum tax payable by the trustee on the trust's taxable income | 1 July 2028 | All discretionary (family) trusts, with limited exclusions |
Properties and CGT assets owned at 7:30pm AEST on 12 May 2026 are grandfathered to varying degrees — existing investors keep the old rules for the portion of growth that accrued before 1 July 2027, and existing negatively geared properties keep the current treatment until they are sold.
Capital Gains Tax — the new world from 1 July 2027
From 1 July 2027 the 50% CGT discount disappears for individuals, trusts and partnerships. In its place:
- The cost base will be indexed for inflation (CPI) — broadly the same system that operated between 1985 and 1999, applied to assets held for more than 12 months.
- A 30% minimum tax rate will then be applied to the (real) gain. The minimum bites where your marginal rate would otherwise be below 30%. Age Pension and other means-tested income-support recipients are exempt from the minimum tax.
- The pre-CGT exemption for assets bought before 20 September 1985 is removed for disposals from 1 July 2027.
- New residential builds are carved out — investors in genuinely new dwellings can choose between the 50% discount and the new indexation / minimum-tax regime.
For investments owned at Budget night, only the growth accruing after 1 July 2027 is captured by the new rules. The gain attributable to the period before that date keeps the 50% discount, so taxpayers will need a 1 July 2027 valuation for assets they intend to hold across that date.
Example 1 — Higher-income investor: a disadvantage
David is on the top marginal tax rate (45% plus Medicare). He buys an investment property for $800,000 in August 2027 and sells it five years later for $1,100,000. Assume CPI averages 3% a year.
| Old rules (50% discount) | New rules (indexation + 30% minimum) | |
|---|---|---|
| Sale price | $1,100,000 | $1,100,000 |
| Cost base | $800,000 | Indexed to $927,400 (800,000 × 1.03⁵) |
| Capital gain | $300,000 | $172,600 |
| Discount / adjustment | $150,000 (50% off) | None |
| Tax at 45% | $67,500 | $77,670 |
| Extra tax under new rules | +$10,170 |
The new rules disadvantage David. Indexation only protects him from inflation — the 50% discount used to shelter half of his real growth as well. The 30% minimum is irrelevant here because his marginal rate is already higher than 30%.
Example 2 — Lower-income investor: a bigger disadvantage
Margaret is retired, with $25,000 of other taxable income (well below the 30% threshold). On the same facts as David, the gain under the new rules is $172,600. Today she'd pay around 16–30% blended on the discounted $150,000 gain. From 1 July 2027 the 30% minimum tax floor means at least $51,780 of tax on the gain — regardless of her low marginal rate. Retirees and stay-at-home spouses who once timed disposals to coincide with a low-income year will lose much of that planning leverage.
Example 3 — Where indexation can be an advantage
Where an asset rises only in line with inflation, indexation produces no real gain and therefore no CGT — a better outcome than the current 50% discount, which still taxes half the nominal increase. Long-held, low-growth assets and those held during high-inflation periods may be slightly better off.
Example 4 — A young couple saving for a home through shares
Jack and Emma are both 24 and each earn $100,000 a year. On 1 July 2026 they jointly invest $10,000 into an Australian share portfolio and continue to add $1,000 a month for ten years, with the aim of using the proceeds as a deposit on their first home. The portfolio averages 7% capital growth and 3% dividend yield (reinvested), and CPI runs at 2.5% per year.
After ten years (1 July 2036) they sell to fund their home deposit.
| Item | Value |
|---|---|
| Cash contributed ($10,000 + 120 × $1,000) | $130,000 |
| Dividends reinvested over 10 years (already taxed as income each year) | $29,845 |
| Total cost base (cash + reinvested dividends) | $159,845 |
| Indexed cost base at 2.5% CPI per parcel | $181,123 |
| Portfolio value at sale | $228,267 |
| Old rules (50% discount) | New rules (indexation + 30% minimum) | |
|---|---|---|
| Capital gain | $68,422 | $47,144 (real gain after indexation) |
| Discount applied | $34,211 (50% off) | None |
| Assessable gain split 50:50 | $17,106 each | $23,572 each |
| Each partner's salary | $100,000 | $100,000 |
| Tax on the gain (each, including 2% Medicare) | $5,474 | $7,543 |
| Couple's total tax on the gain | $10,948 | $15,086 |
| Extra tax under new rules | +$4,138 |
The new rules cost Jack and Emma roughly $4,100 more in tax on the sale. Indexation has stripped about $21,000 from the nominal gain (a real benefit), but the removal of the 50% discount more than offsets it. Their effective marginal rate on the indexed gain is around 32% — the 30% minimum tax doesn't bite because their salary already puts them above the threshold.
Two practical observations for young accumulators:
- The disadvantage grows with the length of the holding period. The longer the asset is held, the more "real" growth accrues — and that real growth is now fully taxed instead of half-taxed.
- For couples saving for a first home, the result is a meaningfully smaller deposit. In this case the after-tax proceeds drop from $217,320 to $213,181 — a real loss of buying power right at the point of taking the next step in life.
Negative Gearing — quarantined from 1 July 2027
From 1 July 2027, losses from established residential property can only be offset against rental income or capital gains from residential property. Excess losses must be carried forward to be used against future residential property income — they cannot reduce salary, wages or other investment income.
Crucial dates:
- Properties owned (or under contract) before 7:30pm AEST on 12 May 2026 are grandfathered — current treatment continues until the property is sold.
- Properties acquired after that time but before 1 July 2027 keep current treatment up to 30 June 2027, then move into the new regime.
- New builds continue to access full negative gearing — the carve-out is deliberately designed to channel investment into new housing supply.
- The change does not affect shares, commercial property, managed investment trusts or superannuation funds.
Example 5 — Established property bought after Budget night
Sarah (top marginal rate, 45%) buys an established four-bedroom rental in Toowoomba on 1 July 2026 for $720,000. She borrows $580,000 at 6.5% interest. Annual figures:
- Rent: $32,000
- Interest, rates, insurance, maintenance, depreciation: $54,500
- Net rental loss: $22,500
| 2026–27 (transition year) | 2027–28 onwards | |
|---|---|---|
| Treatment of loss | Offset against salary | Quarantined to property income |
| Tax saving from loss | $10,125 (45% of $22,500) | $0 in current year |
| Carry-forward | Nil | $22,500 carried forward |
Sarah's cash position deteriorates by more than $10,000 a year from 1 July 2027 because her wage income can no longer absorb the loss. Her carried-forward losses sit idle until the property generates positive rent or she sells.
Example 6 — Grandfathered property: no change
If Sarah had already owned the same property at Budget night, the existing rules continue indefinitely while she holds it. This makes the grandfathering rules extremely valuable and creates a clear divide between "old" and "new" portfolios. Clients considering selling and re-buying within their portfolio should think very carefully — once a grandfathered property is disposed of, the protection is gone.
Example 7 — Same young couple, taking the investment property path instead
Now suppose Jack and Emma take a different route to their family home. Instead of accumulating shares, they buy a $600,000 established residential investment property on 1 July 2026 — still living with family to save costs — with the plan of selling in ten years and using the equity for their own home. The financing assumptions:
- Purchase price $600,000, plus $20,000 QLD stamp duty and $2,000 legal — cost base $622,000
- 95% LVR — loan $570,000, deposit $30,000
- Interest-only loan at 6.5% — interest cost $37,050 per year
- Starting rent $27,000 (about $519/week, ~4.5% gross yield), growing 3% per year
- Other expenses (council rates, insurance, property management at 8%, repairs, depreciation): around $13,860 in year 1, rising with CPI of 2.5%
- Property growth: 5% per year — value at year 10 is $977,337
Because the property is acquired after 7:30pm 12 May 2026 but before 1 July 2027, the existing negative gearing rules apply for the first financial year only (FY2026–27), and the new quarantine rules apply from 1 July 2027 onwards. The CGT changes hit in the same way — pre-1 July 2027 growth keeps the 50% discount, post-1 July 2027 growth uses indexation.
Year-by-year rental position (couple level, 50:50 split between Jack and Emma):
| FY | Rent | Interest | Other costs | Net loss | Tax saving — OLD rules | Tax saving — NEW rules | Carry-forward loss |
|---|---|---|---|---|---|---|---|
| 2026–27 | $27,000 | $37,050 | $13,860 | ($23,910) | $7,651 | $7,651 | $0 |
| 2027–28 | $27,810 | $37,050 | $14,082 | ($23,322) | $7,463 | $0 | $23,322 |
| 2028–29 | $28,644 | $37,050 | $14,310 | ($22,716) | $7,269 | $0 | $46,038 |
| 2029–30 | $29,504 | $37,050 | $14,545 | ($22,091) | $7,069 | $0 | $68,130 |
| 2030–31 | $30,389 | $37,050 | $14,785 | ($21,446) | $6,863 | $0 | $89,576 |
| 2031–32 | $31,300 | $37,050 | $14,632 | ($20,382) | $6,522 | $0 | $109,957 |
| 2032–33 | $32,239 | $37,050 | $14,885 | ($19,696) | $6,303 | $0 | $129,653 |
| 2033–34 | $33,207 | $37,050 | $15,145 | ($18,989) | $6,076 | $0 | $148,642 |
| 2034–35 | $34,203 | $37,050 | $15,412 | ($18,259) | $5,843 | $0 | $166,901 |
| 2035–36 | $35,229 | $37,050 | $15,686 | ($17,507) | $5,602 | $0 | $184,409 |
| 10-yr total | $66,662 | $7,651 | $184,409 |
The first big consequence is plain in the table. Under the existing rules Jack and Emma would receive $66,662 in tax refunds over the ten years to help them carry the property. Under the new rules they get just $7,651 — only in the grandfathered first year. From year two onwards every dollar of net rental loss accumulates in a carry-forward pool that cannot reduce their salary tax. That is a $59,011 cash-flow disadvantage spread over the ten years, hitting hardest in the early years when the negative gearing benefit was most useful for cash flow.
For a young couple living with family on a tight household budget, this is the key question to answer at the outset — can we hold the property without the tax refunds? Many investors today rely on those refunds to bridge the rental shortfall each year.
What happens at sale on 1 July 2036?
| Old rules (50% discount) | New rules (split + indexation) | |
|---|---|---|
| Sale price | $977,337 | $977,337 |
| Less selling costs (agent + legal) | ($26,433) | ($26,433) |
| Net sale proceeds | $950,903 | $950,903 |
| Cost base | $622,000 | $622,000 (pre-1 Jul 2027); $786,784 indexed thereafter |
| Gross capital gain | $328,903 | $4,000 (pre-1 Jul 2027, 50% discounted from $8,000) + $164,120 (post, indexed) |
| Sub-total assessable gain | $164,452 (after 50% discount) | $168,120 |
| Less carry-forward rental losses | n/a (already used yearly against salary) | ($168,120) — absorbs the gain |
| Net assessable gain | $164,452 | $0 |
| Couple's CGT bill (incl. Medicare) | $59,236 | $0 |
| Carry-forward losses stranded after sale | nil | $16,289 — unusable unless they buy another residential property |
Now the picture flips. The carry-forward rental losses Jack and Emma accumulated under the new rules absorb almost all of the assessable gain on sale, so they pay no CGT. Under the old rules they would pay $59,236 in CGT on disposal.
- Cash flow during ownership. Jack and Emma forgo about $59,000 of refunds across the ten years. For a young couple paying interest at 6.5% on a $570,000 loan, those refunds were not abstract — they were the difference between holding the property and being forced to sell early.
- Stranded losses. $16,289 of carry-forward losses are still sitting in the pool after sale. Unless Jack and Emma immediately buy another residential investment property, those losses are gone forever.
- This result depends on the gain being big enough. If property growth had been 3% rather than 5%, the gain would have been roughly half — and most of the carry-forward losses would have been wasted. In a lower-growth environment, the new rules produce a meaningfully worse total tax outcome.
The 30% Minimum Tax on Discretionary Trusts — from 1 July 2028
This is the change with the broadest reach for our client base. Many of our clients own investment property, share portfolios and operating businesses through family discretionary trusts. From 1 July 2028:
- The trustee of a discretionary trust will be required to pay 30% tax on the trust's taxable income (unless higher rates apply).
- Individual and other non-corporate beneficiaries still include the distribution in their tax return, but receive a non-refundable credit for the tax paid by the trustee.
- Corporate beneficiaries ("bucket companies") will be assessed on their entitlement without any credit — a deliberate move to prevent the minimum tax being washed out through franking.
- Trustees holding franked dividends must use franking credits to satisfy the minimum tax first.
- Excluded trusts: fixed and widely held trusts, complying super funds, special disability trusts, deceased estates, and charitable trusts.
- Excluded income: primary production income, certain income relating to vulnerable minors, amounts subject to non-resident withholding tax, and income from assets of testamentary trusts that existed at announcement.
- A three-year rollover relief window (from 1 July 2027) will allow restructuring out of a discretionary trust into a company or fixed trust without triggering CGT — though stamp duty and other state-based costs still need to be considered.
Example 8 — Distributions to a low-income spouse
Tom and Lisa run a property investment trust. Lisa has no other income. The trust earns $80,000 net rental income.
Currently: Lisa receives the full $80,000 distribution. Her tax (2028–29 rates) is around $13,750 — an effective rate of about 17%.
From 1 July 2028:
- Trustee pays 30% on $80,000 = $24,000 to the ATO upfront.
- Lisa still declares $80,000 and receives a $24,000 non-refundable credit.
- Her tax on $80,000 is around $13,750.
- Because the credit ($24,000) exceeds her own tax liability and is non-refundable, the excess $10,250 is lost — it cannot be refunded.
- Total tax paid by the family: $24,000 rather than $13,750.
The minimum tax effectively eliminates the benefit of income splitting to a lower-income family member. This is the policy intent — but it lands hardest on retired spouses, adult children at university, and family members who legitimately rely on trust distributions as their main income.
The big one — distributions from a profit trust to a loss trust
Many of our property-investor clients use multiple discretionary trusts: one trust earns rental income or capital gains, while another (often holding an earlier business venture or an investment that's underperformed) carries forward tax losses. Streaming profits from the profit trust to the loss trust allows the losses to absorb the income, leaving little or no net tax. This is a perfectly legitimate strategy under the current rules — and a very common one.
The 30% minimum tax fundamentally changes the economics, because it is paid by the trustee of the profit trust before any distribution is made, and the credit that flows with the distribution is non-refundable.
Example 9 — Profit trust streaming to a loss trust
The Smith Property Trust holds a residential investment portfolio and earns $150,000 of net rental income in 2028–29.
The Smith Investment Trust has $300,000 of carried-forward tax losses from an earlier business that closed.
In prior years, the trustee of the Property Trust would simply distribute the $150,000 to the Investment Trust, which would offset it against its losses. Total tax: nil.
From 1 July 2028:
| Step | Current rules | New rules from 1 July 2028 |
|---|---|---|
| Profit Trust taxable income | $150,000 | $150,000 |
| 30% minimum tax paid by trustee | n/a | $45,000 |
| Distribution to Loss Trust | $150,000 | $150,000 (with $45,000 non-refundable credit) |
| Loss Trust applies $150,000 against $300,000 of losses | Nil tax | Nil tax |
| Can the $45,000 credit be refunded or carried forward? | n/a | No — the credit is non-refundable and is lost |
| Total family tax | $0 | $45,000 |
| Carried-forward losses remaining in Loss Trust | $150,000 | $150,000 |
Two things to notice:
- The $45,000 minimum tax is a permanent cash cost. It is paid in the profit trust and the loss trust cannot recover it.
- The losses in the loss trust are partially "stranded". They still reduce the loss trust's own taxable income on the distribution to nil, but the family has paid full freight 30% tax anyway — so the economic value of those losses has been substantially diminished.
- Bringing forward profitable disposals so income is streamed to the loss trust under current rules.
- Restructuring using the three-year rollover relief from 1 July 2027 — for example, collapsing the profit trust into a company (potentially accessing the 25% small business company tax rate) or into a fixed trust (which is outside the minimum tax).
- Reviewing the corporate beneficiary strategy. Because corporate beneficiaries no longer receive a credit, the long-standing "bucket company" approach loses much of its appeal — bucket companies set up purely to receive trust distributions will need a fresh look.
- Employing family members in the business, where genuine work is performed, since salary and wages do not attract the minimum tax.
Every situation is different. The rollover relief, exclusions and franking-credit rules will be finalised through consultation, and we'll know more once the draft legislation is released.
What we recommend you do now
Although these measures are announcements, not yet law, the affected start dates are close enough that planning needs to begin in the 2026–27 financial year. We suggest clients in the following categories book a review with us:
- Investment property owners, particularly anyone considering buying, selling or contracting after 12 May 2026.
- Holders of long-standing share portfolios or pre-CGT assets, where a 1 July 2027 valuation may be critical.
- Family trust groups, especially those with multiple trusts, bucket companies or carried-forward losses.
- Clients planning major asset disposals between now and 30 June 2027 — timing is everything.
- Anyone considering restructuring — the rollover relief window opens on 1 July 2027 and only runs for three years.
The team at Acumen will be running client briefings later in the year as the draft legislation emerges. If you'd like to be on the list, or you'd like an early review of your structure, please contact our Toowoomba office.
This article reflects the Government's announcements as of 12 May 2026 and the position set out in the Budget Papers and supporting Treasury fact sheets. The measures discussed are not yet law and the final detail will depend on consultation and enacting legislation. This article is general in nature and does not constitute personal tax, financial or legal advice. Please contact Acumen Accounting & Business Services for advice tailored to your circumstances.
