May 2026

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The 2026 Federal Budget introduces the most significant changes to investment taxation in a generation. CGT, negative gearing, and family trusts are all in scope. None of it is law yet, but investors with property or growth assets need to understand what’s proposed and when it takes effect.

What Changed

Capital Gains Tax (from 1 July 2027)

• The 50% CGT discount is scrapped. In its place: inflation indexation of an investor’s cost base, with a 30% minimum tax floor on any real gain.
• The 30% floor is the key change: you can no longer reduce CGT below ~30% on real capital gains, even if inflation has eroded most of the nominal gain.
  - This particularly impacts low-tax or zero-tax investors who previously could realise gains tax-free.
• Applies to shares, property, crypto, and all other CGT assets.

Negative Gearing

• Restricted to new builds only for properties purchased after budget night.
• Existing investment properties are grandfathered. This is a forward-looking constraint, not a retrospective hit.

Discretionary Trusts (from 2028)

• A 30% minimum tax on trust distributions. Families can no longer stream income to low-tax beneficiaries to reduce the overall tax burden to near zero.
• Applies to new distributions from 2028. Existing structures are not unwound, but the tax benefit largely disappears.

Workers and Small Business

• $1,000 instant work-related deduction for all wage earners, plus a $250 annual tax offset from 2027-28.
• Small business: permanent instant asset write-off. A continuation of existing policy, welcome certainty nonetheless.

Winners and Losers (ignoring any unintended second order effects)

Winners

• Wage earners. Tax offsets and instant deductions benefit most workers, particularly those in the middle bracket.‍
• First home buyers. Less investor competition for established properties should ease pricing pressure, particularly in sub-$1m markets.‍
• Small business owners. Permanent instant asset write-off removes the annual uncertainty that has complicated planning for years.

Losers

• Property investors. Restricted negative gearing on established properties, combined with a higher CGT floor, is a material structural headwind.
• Growth asset investors. Shares and crypto are caught by the CGT changes. The 30% floor reduces the after-tax return on buy-and-hold strategies.
• Wealthy trust structures. Family discretionary trusts lose the ability to distribute income to zero or low-tax beneficiaries from 2028.
• Long-term holders with large unrealised gains. The 30% floor removes the strategy of selling in low-income years to reduce CGT to near zero. Retirees are particularly affected.

What It Means for Portfolios

The CGT changes shift the relative attractiveness of how returns are generated. The old system rewarded capital growth: gains taxed at half your marginal rate made buy-and-hold highly efficient. The 30% floor narrows that advantage significantly.

• Income over growth. High-franking equities and income-generating assets become more tax-efficient relative to pure growth strategies. Franked dividends deliver tax-paid income, and refundable credits are a meaningful advantage that growth assets can no longer match as easily.
• Implications for portfolio construction. These changes increase the value of deliberate portfolio structuring, including the use of bucket strategies rather than relying solely on traditional all-in-one multi-asset portfolios. Well designed bucket approaches (e.g. cash / income / growth) can:
  
  • Prioritise natural income (dividends, distributions) to fund spending needs
  • Reduce reliance on selling growth assets, which now more reliably crystallises CGT
  • Allow advisers to flex the mix of income vs growth based on client tax status and sequencing risk
  • Bucket strategies don’t eliminate CGT, but under the new rules they can assist in deferring and smoothing realisation, which is more valuable now that CGT outcomes are less sensitive to marginal tax rates (i.e. less benefit from timing gains into low-tax years).
• New build property. The one segment where negative gearing survives. Investors still seeking property exposure have a narrower but still avalable path.
• Trust structures. If you use a discretionary trust, get advice before 2028. The restructuring window is short and changes take time to implement properly.
• Timing of gains. Assets with large unrealised gains should be reviewed before July 2027. Crystallising under the current 50% discount may be preferable for some investors, depending on their tax position.

Political Reality

• None of this is law yet. The Coalition is opposing the housing-related tax changes and may seek to block them in the Senate.
• Labor is framing this as “generational fairness” and will run hard on that language if the legislation is contested heading into an election cycle.
• The key risk for investors is acting too early or too late. Changes are proposed for 2027 and 2028. There is time to plan, but the legislative path will become clearer over the next six to twelve months.

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